When working with downloaded spritesheets is it better to process them using photoshop and change the background to transparent or can you use shaders to single out a color for opacity masking within unity?

Questions & Answers
1

Depends. Yes, a shader can mask a specific color as described, provided the asset has pixel-perfect resolution. I don’t think any Unity standard shaders do this. It’s arguably superior to edit the asset whenever possible, for general convenience and performance.