You extract them from the game using the FL CMP import filter and Milkshape and edit them in some kind of paint program like The GIMP. Textures can be extracted as JPEG, BMP or Targa images. The Lancers Reactor web site has a tutorial and the import filter. I had problems getting the FL import filter to work with Milkshape 1.8.x from the Milkshape web site so you may have to search around for a 1.7.x version.