Well, the character I want to sprite is one of my DBZ ocs but four or five shades to represent one color seems good. Except she has at least two different hues of blue.
It doesn't matter how many shades you use per color. In spriting in an established style, you simply attempt to mimic the basic look. You can use as many shades as to make something look good, without breaching the 16 color limit. It should be your own artistic call whether or not more or less shading makes it look better, worse, more accurate, or less accurate.
And, I'm gonna sound like a moron for this, but transparency as a color? Undecided
A sprite is on a background. If not made transparent, you would have a square border around your sprite.
In order to properly make it transparent, that background is of a color not present in the sprite. Because otherwise, your sprite itself would have unwanted transparency.
Both game engine and art programs simply need to define one unique color as transparent, thus transparency is a color.