Traditionally in a bitmap a pixel is represented as RGB (Red, Green, and Blue elements). Another method to represent pixels is ARGB (Alpha, Red, Green, Blue). Alpha can be either a bit or multiple bits and represents the level of transparency.
Alpha bit is just basically another way of storing transparency information that can be used with some hardware to enhance performance. The most popular old way of doing transparency was to designate one color out of the palette and not draw that pixel if the pixel was that particular color.
I assume this is what Larian means by using Alpha bit.
