Image Overlay Utility is a small, easy-to-use program for graphic artists to overlay transparent, click-through images anywhere on screen!
Use it as virtual tracing paper for painting, sketching, or tracing under an image (in graphics software which doesn't have layers), for unobtrusive watermarks during live demos, presentations, and screencasts, or simply for referencing graphics somewhere on the screen during the artistic process. More Info »
There are transparency, flipping, rotation, and scaling features, as well as an edge detection feature for when you just want to work with lines. The image is always on top but can be hidden using the opacity slider.
Supported image formats include BMP, animated GIF, ICO, JPEG, transparent PNG, and TIFF.