The file has to be square (64x64 or 128x128) with a bright purple background. RGB value is 255, 0, 255
Draw your gunsight (don't use anit-aliasing). Make sure you leave at least a 1 pixel border around the gunsight. Otherwise, it will look strange when the gunsight moves.
Save the file to a 256 color bitmap.
Copy that file, and turn it into a grayscale bitmap. Black will be transparent, and White is solid. Anything else will be semi-transparent.
When your done, make sure you name the grayscale file the same as the color file but add _alpha after the filename. Example: Superfly.bmp (color file) Superfly_alpha.bmp (grayscale)
Take a look at some of the player made sights to get an idea of the look you want.