Flattening an object means to merge all layers in the layer palette into one layer. This function is used to eliminate uneccessary layers when creating artwork in a design program. Having too many layers can be highly confusing when composing artwork.
To Flatten Layers:
In Illustrator:
1) Layer palette>Carrot on layers palette to view layer options>Flatten artwork
In Photoshop:
1) Layer palette>Carrot on layers palette to view layer options>Flatten image
To learn more about Transparency, go to http://www.adobe.com/products/creativesuite/pdfs/transparency_quick_start.pdf