I want to use a material/texture on a plane but cant seem to get it to use the alpha from the Photoshop file (PSD). Is there any special settings I should know of? I am not familiar with materials or textures so please write the answer in n00b-mode.
Make so that your shader uses something like the Transparent/Diffuse or Transparent/Cutout/Diffuse shaders As for your PSD, I never tried this format in Unity, but you're more likely to get decent results with either PNG format (though watch out for transparency artefacts on the borders of your image in PNG, implicit alpha ain't nice) or (my preferred format of all time) Targa/TGA.
Have you tried saving it in the .png file-type? It generally carries over transparent images very well.