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Only using 16 bits, with palette the alpha/transparency is lost. One trick is having this in mind prepare the image before use the tool so you can erase the color around easily.

Ok, will work around it.  One other question I have as I watch the tutorials, there looks like an earlier version had a "black outline" feature, I would love to be able to add an outline/border, is that something that still exists?

Well, not was an outline, was a "toon effect" that creates a black ouline also inside the image that i remove it at the end due some times in some GPUs is glitched :(