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In this video tutorial, Anne from Graphic Design How To demonstrates how to create a cut line from a transparent PNG in Adobe Illustrator. She emphasizes the need for a high-resolution image with a lot of contrast for the cut line to show up effectively. While a transparent background is preferred, images with a white background can also be used as long as there is enough contrast. It's important to avoid small, blurry images or light colors touching white to prevent issues. Anne proceeds to create a new document in Illustrator by selecting Print and Letter options.