PictureBox Transparency background appears Black after Graphics.Clear(Color.Transparent)

I'm glad to see someone who is mindful of cpu slowdowns.  As to layers, it isn't necessarily a bad idea but layers are general implemented to help an end user keep things in perspective.  You are absolutely right about having to draw "thousands of polygons" when you edit one shape.  However, there is a great method called "Clipping" that eliminates this need to draw everything.  MS has used it for years and we can use it ourselves.  We can implement it without a custom class but writing our own would be much more concise.  I haven't got a lot of time but let me explain it like this:

Imagine you have four rectangles that are being drawn directly to a windows Form:

****    ****
*1**    *2**
****    ****

****    ****
*3**    *4**
****    ****

Now conventionaly speaking, if you wanted to update rectangle 4's color to red you would change the color property to red and call the  this.Invalidate() function.  The entire form would be repainted and all the rectangles would be updated. 
This is where the clipping method can help us.  Lets say that rectangle 4's coordinates are 80 pixels from the left and 80 pixels from the top and the width and height are 20 pixels.  We can now use the this.Invalidate() function but we will now pass the clipping area to paint:    this.Invalidate(new Rectangle(80,80,20,20));
Now only the area inside the bounds of the 4th rectangle will bw repainted. If you had a million objects outside those bounds they would not get updated. Pretty cool huh?  Art programs have used this method for years to prevent long refreshes.
The only thing is that all the objects are still sent to the graphics object to be drawn. (even though they will not be).  This is where a custom class would be handy.  Here is a rough draft of a good custom class.  Add a blank code file and insert this class code.
This is fairly lengthy but I think it will help you get started.

//BEGIN CODE  (Paste below)

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing.Drawing2D;
using System.Drawing;

    public class ShapeManager
    {
        //All shapes will be exposed through this collection
       public List Shapes = new List();

        public void PaintShapes(Graphics g)
        {
            //note: the clipping area should already be set
            //in the graphics object through this.Invalidate()

            //We will now loop through all the shapes and paint
            //only those that are part of the clipping rectangle.
            short intCount = ((short)Shapes.Count);
            for (short intNum = 0; intNum < intCount; intNum++)
            {
                //Don't send shape to graphics object if it's bounds
                //do not fall inside the clipbounds
                if (Shapes[intNum].IsInsideClipBounds(g.ClipBounds))
                {
                    if (Shapes[intNum].Path != null)
                    {
                        //Sample paint code
                        g.FillPath(new SolidBrush(Shapes[intNum].FillColor), Shapes[intNum].Path);
                        g.DrawPath(new Pen(Shapes[intNum].LineColor, Shapes[intNum].Path));
                    }  
                }                 
            }
        }
    }

public class MyShape
{
    #region Properties
        private GraphicsPath _Path ;
        public GraphicsPath Path
        {
            get { return _Path; }
            set { _Path = value; }
        }

        private Color _LineColor ;
        public Color LineColor
        {
            get { return _LineColor; }
            set { _LineColor = value; }
        }

        private Color _FillColor;
        public Color FillColor
        {
            get { return _FillColor; }
            set { _FillColor = value; }
        }

    #endregion

    public MyShape()
    {
        //Allows us to create a new shape without having to pass
        //any initial properties
    }

    public MyShape(GraphicsPath gp, Color lineColor, Color fillColor)
    {
        //Initialize the shape
        _Path = gp;
        _LineColor = lineColor;
        _FillColor = fillColor;
    }

    public bool IsInsideClipBounds(RectangleF clipBounds)
    {
        return clipBounds.Contains(_Path.GetBounds());
    }
}

//END Code *************************

You can now insert the code below into your forms load event.  note: You must create an instance of the ShapeManager class at the top of the form class.  I have called mine: "myshapeManager"

//Insert into Form's Load routine
   //Create Shape One
   GraphicsPath gp = new GraphicsPath();
   gp.AddRectangle(new Rectangle(20, 20, 20, 20));
   MyShape newShape = new MyShape(gp, Color.Black, Color.Red);

   //Create Shape Two.......... (Alternate Method)
   MyShape newShape2 = new MyShape();
   GraphicsPath gp1 = new GraphicsPath();
   gp1.AddRectangle(new Rectangle(80, 20, 20, 20));
   newShape2.Path = gp1;
   newShape2.LineColor = Color.Black;
   newShape2.FillColor = Color.Blue;
           
   //add shapes to collection
   myShapeManager.Shapes.Add(newShape);
   myShapeManager.Shapes.Add(newShape2);

//End CODE ****************************************

Whew! Were almost through.  You now need to trap the form's OnPaint() event.
Copy this code directly below the Form's Load routine:

//Begin Code

   protected override void OnPaint(PaintEventArgs e)
   {
      base.OnPaint(e);
      myShapeManager.PaintShapes(e.Graphics);
   }

//End CODE  *************************

For testing purposes, create a button and inside it's click event, put a Invalidation (paint) command.

SOmething like:
  private void btnTestInvalidation_Click(object sender, EventArgs e)
  {
    //will trigger the "OnPaint" method
    this.Invalidate(new Rectangle(0,0,100,100));
  }

I hope this has helped you.  If you have any other questions please let me know.  The reason for being so lengthy is that I had the same issues some time back and I'm willing to help anybody who struggles with them.  You'll probably be teaching me before its all over!

Your programming friend,
Richard

First of all I don't how you are able to see through one picturebox to another.  I have tried and all I get is the standard background color.  You must be setting that property in code.
I'm not sure I can answer your question about the Graphics.Clear() problem.  However, using a picturebox is really not the best option to begin with.  A MUCH better option would be to create your own class that can blow past the functionality of the picturebox by a long shot!  If you need help in creating this class, I'll be more than happy to assist you.  Once you start using you OWN classes, I think you'll agree there's nothing better!