I figured out to to delete everything around an image so that the background is transparent but I can't figure out how to delete an area inside the image so that area is transparent too. Like a coffee cup, how to do you make the inside of the handle transparent too?
There are a few ways you can do this - it depends on the kind of shape you want to make inside the other. For example, if you are hollowing out a rough or hand drawn type of shape, use the eraser tool (shift+e) _ select the shape to be hollowed, adjust the brush size, and begin painting.
If you want to cut out a more refined, detailed shape from within another shape, use the pen or pencil tool — draw the shape you want to remove, and then either:
a) select both your shapes and select Object > Compound path > Make
b) select both shapes and using the pathfinder panel (from the window menu) select the "minus front" icon.
You can continue to edit both shapes (use the white direct select tool to isolate one shape from the other) and the effects will update each time.