It needs to be a 64x64 256 color .bmp. It's been a while, but IIRC you need to name the file the same as the CPID of the squad CO then have him put it in his "squads" folder, and log into the game and go to the O'club > Squads and then click on the Upload Noseart button. It gets reviewed by the HTC crew and then put in game.