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Put quite simply, you "fill" a shape with an image (pick a shape that's roughly the same size as the image) and then can adjust transparency. "What do you mean?" Don't worry, I'll explain further.
Below, you'll see one of our clip art images, inserted in PowerPoint. It looks great the way it is, but let's say we want to make it a watermark or just fade it the tiniest bit. If we use the "Watermark" feature of PowerPoint, the image will become drastically lighter, with very little detail and the white stick figures will fade almost completely. What we will do instead of using the "Watermark", is inserting a shape and using the picture as the fill color.
To do this, start by using "Insert"(tab)>"Shape"(ribbon)>"Rectangle"(ribbon), and draw a rectangle roughly the same size as the image you inserted. Something to consider is this: If you can make the size of the shape the EXACT same size as the image borders, it'll fit right inside the shape as the fill, and won't look stretched, squashed, or strange.
Now, the default color for a shape in PowerPoint or word is blue. Why blue? I'm not sure, but that's OK, it makes it easier to find for our purposes. Alright, next up, go to your shape you just inserted (the blue rectangle), right click and select "Format Shape".
Next, you will see a pop up box that appears, select the "Fill" option at the top, if it is not already selected (more than likely, it'll be selected already). Select "Picture or Texture Fill" and then "Insert from: File" directly below the texture pallet.
Find the picture you want to insert and click OK. You'll be left with what appears to be your normal image, but now you have the ability to modify the transparency by using "Format Shape">"Fill">"Transparency"(at the bottom of the Fill Options).
Ultimately, you may be wondering what you'd use the semi-transparency for, other than perfecting color options for backgrounds and foregrounds, the beauty is that the sky is the limit.
