I dont quite get whats so professional and secret about this.  
There probably is no universal correct way to go about it, but typically Id have the character in a movieclip container, place that on the main/whatever timeline and apply that layer blending option as shown in the pic. (Full view of the pic here)  
You can also do it by post-processing in After Effects, but thats more complicated.  
Theres also some glitch (in Flash CS4 anyway) that makes graphic type of objects seem like they have the layer blending on from time to time when viewed from the main/whatever timeline. Graphics cant have any blending options though, so it never shows up in the actual swf.