Alpha controls the transparency of Flash objects in relation to each other when the movie is exported, as in an SWF file they do maintain their independence as individual objects but in movie format, the entire scene must be composited. Auto should preserve the alpha as originally designed in the movie.
Layer controls the layering of Flash objects in relation to each other in much the same fashion as Alpha. Leave this on auto unless you have certain types of video objects embedded in your Flash file.
