Save it in your level's folder in a sub-folder named "tilesets" and save it with a name "Tileset(whatever number you want it to be in the editor).(whatever type of file it is)" or just go in the editor, open up Knytt Stories Manager, then "World" then when your in that, go to "edit custom content" or something like that. Hope it helps.
EDIT: Also make sure that everything you want to be transparent is transparent, using either GIMP or Photoshop, or whatever image editing software you use, fill anything you want to be transparent with whatever color the program considers to be transparent, but in the case of GIMP you can just "select by color" any area that you want gone, then just delete it.