Anyway, make a blank TGA file, preferably 512x512, and stick the cameo in the top left corner. Then add the entry for the cameo to any of the INIs in Data/INI/MappedImages/TextureSize_512. You can even make a new INI file and put the entry in there. To see how the entries work, have a look at some of the existing files.
I think he meant Cammoflauge
In your image editor you create an Alpha channel, then working in the Alpha channel you paint pure black in the areas you want to show transparent, and then make sure to save the TGA or DDS output file as 32bit color.