It comes up almost every day. Someone will ask the folks on IconRequests or Userpics, "How do you do that?" or "What programs do you use?" We answer all the time, so I figured I'd just make up a place to point people.
PS - Adobe Photoshop is the grand master program for still images. It comes packaged with the bizarre and anemic Imageready, but the big strength of Photoshop is the support other companies have given it, in the form of plugins. Plugins are effects that can be applied to images, and they range from the simple color shift to the insane Shower Door or Coffee Ring effects from Alien Skin. Those plugins (or filters) are, to a great degree, also compatible with PSP, Fireworks, and even Ulead GIF Animator. Cool, eh?
PSP - Jasc's Paintshop Pro has come a long way since its early days as a glorified image viewer. In the first incarnation, PSP had about as much power as ACDSee does today. Now on version 7, PSP has grown to rival the venerable Photoshop on many tasks. The ranks of folks using PSP on Livejournal far outnumber those of us who user Photoshop. The main reason - cost. PSP costs about $100 and PS costs closer to $450. For that same $100, PSP includes the very nice Animation Shop. Animation Shop has some great effects and simple optimization tools. The problem with those tools is one of control, however. AS can "optimize" an image to shrink the size, but the optimization tends to be too strong, and the image ends up blurry. The best optimization comes from Fireworks, up next.
Fireworks - Macromedia Fireworks is the only program that specializes in "web graphics" in toto. What this means is that, although it kicks serious butt at animation, it also does other stuff web-related. It can slice images, make rollovers (Javascript thing), etc. The graphic editing tools are pretty weak compared to PSP or PS, but the animation tools more than make up for it. You can set up each item as a separate object in a file, and you can animate each object individually. The layer support in Fireworks is also top-notch. For animations, you can select one layer to be shared by all frames, and then you don't have to mess with the background over and over. The optimization system in Fireworks is the most indispensible feature, though. You can tell the "Export Wizard" that you want to make a file a certain size, and it will go through all the gyrations to fit it to 40k (for example). If you don't like the preview, then it's time to get manual - removing frames and so on.
UGA - Ulead GIF Animator is one of the oldest single-use programs around. This program only does one thing, but it's pretty good at it. UGA includes some great timing tools, as well as decent text-handling. The biggest thing, though, is the optional FX for UGA package, which adds a boatload of awesome transitions. PSP is the only other program that has built-in animation effects, and UGA definitely has better ones (with the FX package).
Userpics are small. I know, this is obvious. However, you don't always have to use a small font. If you insist, here are some tiny fonts that are popular. These fonts should all be used at 6-8 points (or a multiple) and non-aliased. If you have enough room to use aliasing, you should use a prettier font. :-)
These should get you really started. Tutorials for: