Creating custom decal

Hey all,
I need some help making a custom decal. Basically I want to make a text based decal which I can apply to a glass texture so it looks like etched glass. I feel like this would be cheaper for the engine(and easier) than extracting the glass texture, adding the text, and saving as a custom texture (If I'm wrong there let me know though). My main thing is, I have no clear concept of making a texture with an alpha channel. I have read two or three tutorials on alpha textures, but, I'm afraid the way my mind works, if they're exactly what I am trying to do I have trouble using the logic to cross over to my application. Plus, I am a total newb at PS, (I have CS3).Any help or direction would be greatly appreciated.(hint:.....dummmy step by step tut needed!).
Thanks in advance!, hehe.

Easy!

Download the VTF Photoshop plugin and make the decal in Photoshop as you would, checker means transparent etc etc.

When you save the vtf, use the template "compressed texture with alpha map". And that's it for the vtf.

Here is an example vmt file for the decal:

"LightmappedGeneric"
{
    "$basetexture"     "decals/my_decal"
    "$translucent"     "1"
    "$decal"         "1"
}

For making the decal look awesome, you need "photoshop brushes" which are basically patterns with transparency to achieve effects. With custom brushes you can both add to your texture by selecting a colour in the brush tool and clicking on the texture (good for rust, grunge, moss etc etc) or you can subtract from your texture by selecting the brush you downloaded in the eraser tool anc clicking on your texture (good for making things look worn out, especially text for something as you want to do).

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Aaron's Stuff