I'm pretty sure a lot of people wondered how to do this, its not that hard after you get the hang of it.
Ok so i'm not going to edit anything, but i'm going to start a new dds project from scratch.
1. Make a new project, use this setup:
2. Now make the background black, and make some plain white text saying whatever you want. I'll put in Tutorial on mine:
3. Now, look at the layer pallet at the right. You should see different tabs, saying Layers | Channels | Paths, select the "Channels" tab.
4. Now in the Channels tab, make a new layer. You should see a new layer appear called "Alpha 1" and the other layers will disappear. Don't enable them for now.
5. Go back to Layers tab, hold CTRL and click on the text layer. Your text should now be selected.
6. Go back to the Channels tab, and make sure you have the Alpha 1 layer selected, and press DELETE on your keyboard.
7. You should now see your text. Now enable all the Channels, you should see some red going around your text. Everything that is in Red is going to be transparent!
8. Now go back to your layers tab, right click on one of your layers, and click flatten image.
9. Last but not least, click on File> Save As> make sure dds is selected and click save. You should get another window asking what format you want your dds image to be. Select DXT5 - ARGB.
Now save it and your done.
This I started from scratch, its a little bit harder when trying to edit a picture. But its about the same, but you get to points where you have to make something transparent. And you can do that by selecting the part you want to be transparent, and make sure you're on the alpha channel, and instead of clicking delete, fill it in with black.
That's it!
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