The square in the middle is the canvas ... This means you will have to make the white background transparent in Illustrator. Since the PNG already has a transparent background, you would just ...

When you try to save such an image, the background area of the image will no longer be transparent and turns into solid color; in most cases, white i.e. Color 2. But again, there is a hack ...

More specifically, I typically need to convert an image with a white background to have a transparent background so that it blends more naturally with a non-white background. The next screen ...