So I’m designing transfer decals for a club. The selected portion in white needs to be transparent, but it also needs to cut out the background shapes in order to have a transparent border for the font below the selection. I’ve tried a “knockout” tutorial but that didn’t give me the results I wanted.
Using Transparency Masks.
Make sure your foreground shape (the cutout) color is set to white and in the foreground (above the other objects/paths).
Now select all (both) of your objects and open the Transparency Panel
Window → Transparency or Shift+Ctrl+F10.
Click on Make Mask and uncheck Clip and select Invert Mask
You can also learn more about this by watching this video from Adobe.