Step-by-step instructions for saving dds files in Photoshop
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When you are ready to save your skin as a dds, you will need to flatten the layers so it is in one (1) layer. To do this, go to the Layer menu and select the Flatten Image option.
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The program will then ask you if you want to discard any hidden layers. Click the OK button.
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You then need to save the image using the Save As option. Be careful not to select the Save option. If you do, you will lose your layers. (If that happens at this point in the process, go to the History window (Window/History) and click on the line titled Open and the file will revert back to the state it was before you flattened the layers. You can then save the file again and it will be fine.) This is the step where you need to slow down if you're trying to get things done as fast as possible so you don't make a mistake. You'll actually save time by doing this step slowly.
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Once the Save As window opens, go down to the Format drop down menu and the dds file format should be an option if you installed the plug-in correctly. Select it and then hit the Save button.
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The nvidia dds plug-in window then opens. Select the type of dds file you want to save your skin as. Select DXT1 for a main paint scheme or DXT5 for a metallic file if the scheme doesn’t use the default met files. You can then hit the Save button and let the plug-in do its thing. You’ll know when it's done. You can then close the file and move to the next file or you can close the program.