This page contains slightly updated information, and is now essential for being able to submit skins to WarZone. On this page that would be the importation to VTFEdit.
Once you have got your skin to a point where you want to test your skin in-game to see how it would look in the real world, you need to convert it to the correct format for Source to understand and render your texture.
In order to convert the texture, you will need some additional software.
You will need VTFEdit to do the conversion. You can find this here: http://nemesis.thewavelength.net/index.php?p=41
Once installed, you are now ready to go.
In your Graphics editor, save the file as a .tag.
In Photoshop: File > Save As
Once completed, open VTFEdit
Click File > Import
Select "TGA" from the supported file list dropdown.
Then a prompt will open, and you will have to adjust the settings to these variables:
And on Advanced:
After that is done press OK, and the importation starts.
Once done, go to File > Save As
Save it as a VTF, and that's it, you're done!
For Testing In-Game, see Part 3: 3. Testing In-Game