You'll have to make the image or "badge" a 64x64 .tga file and save it under the game's badge folder. The "banner" image will have to be a 64x96 .tga file and you'll have to save that under the game's banner folder. While the process should work just fine with paint, you'll get a "square" around the badge or banner. It'd help a lot if you got a Photoshop program of any kind and make that part transparent.
Although it'd help to get Photoshop, you can make badges and banners in MS Paint. Badges will be 64x64, banners will be 64x96. If you had Photoshop, you could make the badge background transparent, and you wouldn't have to worry about the annoying square around the badges and banners. Another thing, they must also be saved as a .tga file under the badges/banners folder in your DoW game file.