Yep, if you're doing a manual override of the default textures, you'll need your textures in .blp format. If you just want to use a texture in an addon, like kgPanels (most recent version
on Curse), then you can use either .blp or .tga format. kgPanels has an in-game tutorial on how to import textures into its library to use in a panel. Alternatively, you can follow the MyMedia directions in the
SharedMedia addon to let kgPanels pick up your textures that way.
Moonwitch's first link is how someone does batch processing in PS for all of the icons in the game. If you want a more general guide on creating textures that you can use in WoW, see
this forum thread.
If you want a BLP converter, there are several on this site, depending on if you are on Windows or a Mac. Just do a
search for "blp".