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About compositing

You can composite images in several ways: by applying keys, by using alpha channels (in clips that have them), by using the opacity effect, and by simply scaling an image to reveal underlying images. All of these methods, except scaling, require that part of a clip be transparent.
Adobe After Effects, another program in Adobe Creative Suite Production Premium, gives you a greatly expanded range of compositing tools. You can easily import composites made in After Effects into Adobe Premiere Pro.

When part of a clip is transparent, transparency information is stored in its alpha channel. You can apply any combination of opacity, masks, mattes, and keying to modify the alpha channel. This partially or totally hides areas of a clip.

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Separated color channels (left), the alpha channel (center), and all color channels viewed together (right)