In this video tutorial you will learn how to create a custom inventory icon using The GIMP.
In addition to the tutorial, be sure to check out the attached txt file. The file lists the icon sizes along with the corresponding tga sizes needed to make the icon look right in the game. Following along with this tutorial, be sure to create your highlighted tga file first then copy/pasta to the nohighlight image. Be sure to move the highlight image to the lower left corner (0,0) of the nohighlight image for a proper and consistent alignment.
Enjoy making new icons for your inventory items.