This tag is used to specify the background color. It should always be included at the start of every .swf file (after the FileAttributes and Protect tags). Only an RGB color can be used (i.e. there is no alpha channel for that color, whatever the SWF version.)
To create a Flash animation that's transparent (so we can see the website gradient, for example) you use the wmode parameter in the HTML tag with the value "transparent", in which case the background color will be ignored and replaced by a fully transparent background. For example:
<embed width="440" height="241" type="application/x-shockwave-flash" pluginspage="http://www.macromedia.com/go/getflashplayer" src="/sites/linux.m2osw.com/files/images/indoor-comfort.swf" play="true" loop="true" menu="true" wmode="transparent"></embed>
There is no parameter you can set inside the Flash animation itself to make it transparent in your browser.