From Compiz

Trans-inactive is an application which sets specified opacity on active and inactive windows.

Why not trailfocus plugin?

You may ask this question. The answer is: trailfocus plugin doesn't play nice with multiple workspaces and that looks very ugly. There's no nice effect when changing workspaces.

Installation

Just run this command:

su -c "rm trans-inactive trans-inactive.c && wget http://www.anykeysoftware.co.uk/compiz/trans-inactive/trans-inactive.c && gcc -o trans-inactive trans-inactive.c -L/usr/X11R6/lib -lX11 && cp trans-inactive /usr/bin/ && rm trans-inactive trans-inactive.c"

Ubuntu users type this:

wget http://www.anykeysoftware.co.uk/compiz/trans-inactive/trans-inactive.c && gcc -o trans-inactive trans-inactive.c -L/usr/X11R6/lib -lX11 && sudo cp trans-inactive /usr/bin/ && rm trans-inactive trans-inactive.c

Running

The syntax is:

trans-inactive -a OPACITY_OF_ACTIVE_WINDOWS -i OPACITY_OF_INACTIVE_WINDOWS

For example, if you want to set opacity of active windows to 1 (100 %) and of inactie windows to 0.5 (50 %), run this:

trans-inactive -a 1.0 -i 0.5

Set speed to 3.7 for fade plugin and you'll get a pretty nice transition effect between overlaying windows.