I have two questions dealing with sprites:

1 = Why does a sprite have three pictures in it
if the largest is the only one that I can get
the program to display when a character
encounters a creature?

2 = Why does the sprite only appear when the
character steps into that location, am I doing
anything wrong or is that the way the program
is supposed to function?

You have created a powerful RPG maker that is
very user-friendly and that can provide limitless
possibilities for design. Keep up the great
work!

Great game

1. The other two pictures are shown in the "encounter" event, when range is less than "close-up" (to see what I mean, make an encounter event, enable one button to "decrease range" and set starting distance to "far away".

2. You are doing nothing wrong, that is the way the program is supposed to function. What it means is that sprites are okay for pictures of monsters (or even other things if you only want them to appear in the one square). If you want to have a chest just sitting on the floor, you need to make it a "wall" so that you can see it before you get to it.

Some events (I can only think of Combat right now) let you display sprites and choose the distance, which automatically picks one of the three images. This part hasn't been tested recently so there might be some problems with it.