How can I get this extension to work?? I never see an option to use it when I click (or right click) an image..

You don't need an extension for this! Always check if you can do simple changes with a CSS script, and you can for new tab image transparency: https://github.com/MrOtherGuy/firefox-csshacks/blob/master/content/standalone_image_page_mods.css

In your search bar, type in "about:support", find and open "Profile directory", create a "chrome" folder, create userContent.css there and add this to it:

@-moz-document regexp("(.*\.(apng|png|jpg|jpeg|gif|webp|avif|ico|bmp|APNG|PNG|JPG|JPEG|GIF|WEBP|AVIF|ICO|BMP)([\?#].*)*$)|(^data:image/.*)"){

@media not print {
img.transparent:only-child{
background: none !important;
}
}
}

Not bad, I suppose