To understand how this works, try this simple experiment.
In Authorware, open a display icon and draw a square. Set it to a medium blue color. Now, draw a circle and drag it so it partially covers the square. Make it any color you want (this example uses red). Choose Window > Inspectors > Modes (or press Control+M) to display the Modes inspector. While the circle is still selected, change the mode to inverse. Instead of a red circle overlapping a blue square, I now have a yellow area wherever the circle overlaps the square, and black everywhere else. Move the circle around and notice inverse mode changes the background color to its chromatic opposite. As we demonstrated, yellow is the opposite of blue, and of course black is the opposite of white. So wherever the circle intersects white, it appears black. Wherever the circle intersects blue, it appears yellow. Fascinating, if mostly impractical.
Finally, we come to erase mode. Erase is fairly straightforward: Anything that intersects a graphic set to erase is changed to the background color.
Note: The modes are arranged, not in alphabetical order, but in order of memory usage. The easiest effect for your computer to handle is opaque;obviously, since it's not doing anything to the graphic. Matte is next, followed by transparent, and so on.
The most popular modes are matte and transparent. Transparent mode makes all white pixels in an image transparent. The pixels must be pure white (255, 255, 255) to be transparent.