PNG is well...think of it as combination of jpg and gif. It's most likely compressed to a certain degree and has one alpha channel. AFAIK the ones used in Elemental are uncompressed, have one alphe channel and are simple (not interlanced). Funny thing is I noticed the problems you mentioned for the first time here in Elemental. Looks like some of the png's have a kinda bugged alpha channel. While my Photoshop has some problems with it and even my usually not so demanding Paintshop seems to suffer, my OpenCanvas has no problems with it at all...good for me since that's my major tool afterall. As mentioned above however usually pngs aren't problematic and really usefull when you need to keep filesize small for the engine while maintaining a good quality without "artifacts" like in JPG.

When saving png's with your PS, try to make them "not interlanced", one alpha channel, 16million colors (24bit) and no compression. When not sure, take one of the available png's and copy it's values to your new one.

DDS files are well...hmm...just DDS files. They contain mip-map data, so...basicly it's an image that contains copies of itself in smaller resolutions. Good to be used with normalmaps as you can put in all the LOD/mipmap data of the normalmaps right into the DDS file and don't have to calculate it in realtime (that would kinda suck). Works for textures too. You can get plugins to help you actually work with those files here http://developer.nvidia.com/object/photoshop_dds_plugins.html . Used with Photoshop you can keep working on the plain texture and simply auto-generate mipmaps when saving your texture.

One thing to consider too is : The engine is using plugins for the intel havoc 3D model format. Usually when texturing a model an unwrapped model is saved as "base texture". Working from there the final texture is painted...well at least that's one way you can do it. However there MIGHT be a small chance that the havoc thingy puts some predefined lighting data onto the exported texture, so this might be one reason you encounter some problems with the textures.

Actually, this is how it is with those special textures:

Since the game relies alot on customizable textures, or color tinting, it handles this by having a base colour that a player can choose, for a piece of clothing for example, and then renders out the texture with the transparency over it, the more transparency, the more of the chosen color will show through.

You can probably use the default png values of the default png saver, if you have an alpha in your document, the exporter will know of that.

DDS files are actually hardware supported compressed files, meaning, they'll stay compressed in graphics memory, so they're favorable to use since you're saving alot of memory by using these. And while the game can generate mipsteps at loadtime (they will not do it at rendertime), it's faster to load these textures because the mipping and compression is done at beforehand.

DXT1 for example, which is an RGB type texture compression has 6:1 compression,

Havok doesn't do anything with the visual representation of the models ingame, it's all down to how the shaders handle the textures, and in this case it's the texture colouring I mentioned further up.

EDIT: I'm not sure which one of the textures elemental will load if there is both dds and png of the same name in the same folder, but I'm guessing it'll favor the dds, while the png is uncompressed and around for modders to change and recompress without having to recompress an already compressed dds, but stardock should know the finite answer to that.

Far better explanation than mine

Okay I just speculated about that Havoc thing since I've never worked with Havocs exporter before but however encountered behavior like that in other texture exporters that put a lighting value on the exported texture to support the engines shaders...caused a lot of pain.

As for the load order of the textures : Elemental's textures are all loaded through the XML definitions. So you can basicly aply any texture, be it png or dds to any model you like. The engine doesn't choose automaticly so you can assign either png or dds. This is kinda strange when you think about it, since dds all around would be better but on the other hand...meh.

I didn't find any.

great!

Yeah, I'm looking forward to the exporter aswell.