Change OSX Folder Icons (Working on OSX Lion)

Question

I have a certain PNG I'd like to replace a folder icon with.

I noticed that when i Command-I this .png file, it will preview on the bottom, but not on the top left part (generic ".png" text appears instead).

I also noticed that only images that DO appear on the top left side of the "Get Info" window can be successfully Command-C'ed + Command-V'ed into my target folders' "Get Info" top left area - so that the image is replaced.

My question: is there some kind of standard for images that makes or breaks their compatibility with changing a folder's icon?