Hi Gina,
Here's the basic steps to create a tatoo:
1: open the template image in PSP
2: open the image you want to use as the tatoo in PSP
3: resize/rotate the tatoo image if needed so it is scaled properly in relation to the template.
4: add a new, empty layer to the template and put it 'under' one of the refrence grid layers set to about 50% tranparent. Which grid layer you use depends on your personal prefrences. I usualy use the one that shows the polygons that make up the Avatars skin so I can see exactly where my item will end up.
5: copy/paste the tatoo into the new layer in the template image
6: adjust the tatoo image as needed to get it just where you want it in relation to the refrence layer.
7: turn off (hide) _ALL_ layers except your new tatoo layer (background should be checkerboard pattern)
8: create an alfa channel for the tatoo (there are several good tutorials just on this subject that you can search for in these forums if you need help with this step)
9: save the resulting image as type '<filename>.tga' (targa) My older PSP version gives some messages about only allowing 1 alfa channel which is fine as that's all you need for the tatoo. I don't know what messages you might get with version 9
10: upload the .tga image to SL (if you dont see a checkerboard pattern behind the tatoo in the upload preview screen, DON'T upload. Go back and review the alfa channel tutorials and figure out where it went wrong.

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11: open the 'appearances' menue on your avitar, apply the new tatoo to your skin and click save then quit.
Your AV should now have ypur newly created tatoo applied to it.
Racer P.