Arcane University:Paint.Net for Skyrim
The Beyond Skyrim Wiki — Hosted by UESP
Paint.NET is a free tool to paint textures and use the layer merging techniques. It can export via dds plugin the native file formate for Skyrims textures. It can also be used to overhaul existing or algorythm-created textures. You can find details of the export formate and necessary settings on the page Arcane_University:DDS_Data_Format.