I use paint shop pro to make textures out of photographs. Then I copy/paste them into a HL wad in Wally AFTER converting them to 256x256 res with 256 colors.
Well theres more than one way to do it. Basically all you got to do is:
1. Open Wally.
2. Click File->New and select Half-Life Package.
3. Add images to it. You can use Package->Create New Image or you can copy/paste images from any other program.
All WAD images should be one of these sizes:
16x16 32x32 64x64 128x128 256x256