NOTE : I'm using paint.NET, so some options may have different names depending on the software you use.
Open your software, and put your sprite and a background on two separate layers. A background isn't necessary for doing that, but it helps to see if you did the fade right.
Step 1 : Making the character sprite white
First of all, you'll need to make your sprite entirely white. An easy way to do it is to go to "Hue/Saturation" and increase the "Lightness" to the maximum.
Step 2 : Prepare the fade effect
Now that your sprite is white, select it using the "Magic Wand" tool. After that, you'll have to create a new layer, but
be sure to keep the selection. You'll get something like this :

(Don't be afraid of that window "Calques" next to the image : It's the french equivalent for layers !)
Normally, at this point, you have a background as your first layer, your white sprite in the second, and you just created a third one.
Now, we'll go to the "colors" :
You can select two colors in this window. For the primary one, pick whatever you want, but for the secondary,
be sure that "Opacity - Alpha" is set to 0, like in the image above !
When you did all of that, it's time to do your fade !
Step 3 : Making the fade
Before you do the fade, uncheck the layer with your white sprite (the second one). Otherwise you won't see the fade you've done.
Now, you just have to use the "Gradient" tool on your third layer. With the selection you made earlier, your gradient will take the shape of the sprite !

(You should get something like this)
Finally, I messed a little bit with opacity and the feather effect and this is the end result :
I hope it's understandable, it's not the easiest thing for me to explain (especially since I'm not a native english speaker)
