<--------->
Black White
Black = Complete Transparency
White = No Transparency (aka Black on screen)
Will edit this post after tinkering more with Transitions.
EDIT: Transitions go in a sort of Gradient order when creating transparencies. I don't know the order in which it goes though, but it's probably Black -> White (As in which gets eliminated to transparent first). Therefore, it's best to have as many colors you can to make it a seamless and smooth transition. Gradients work best in this case. (Alternatively, you can make cool choppy effects by having certain colors masterfully placed)
Here is the description for Transitions in the RMXP Help File:
QuoteTransitions (Graphics/Transitions)
These files specify the effects displayed during screen transitions, such as when you encounter an enemy.
They measure 640 x 480 pixels and must be in 256-color grayscale PNG format. The screen is redrawn from the lower palette number on up.
Of course, this was just my conclusion of short tests. Feel free to disown this or refine it.