You've got it right with the alpha channels. 32 bits add another 8 bits for each pixel which controls the alpha of that pixel. This allows cool effects like transparency but it means more processiing and memory is required. Right now X doesn't support 32 bits, only 24, and transparency is done in kind of a hackish way. Try turning it on in gnome-terminal, Eterm, what have you, and you'll see what I mean. Instead of being transparent so you can see the window below you will see the desktop wallpaper no matter how many windows you're on top of. The freedesktop Xserver project
is working on transparency and right now it kind of works. Let's hope it matures enough into something really cool.