I have a couple of basic questions about textures as i seem to be confusing myself a little

I have created a set of custom textures in photoshop.
Instead of telling you what i have done i will ask you what the proper process is.
Exactly what file format should they be saved as (TGA but what type,Compression etc..?).
When opened and viewed in texview it only seems to save it as a PAA...is this ok or should it be PAC (if so how can i save it as PAC).
Once saved correctly and loaded into WRPtool you can place your textures down on your new island.But where is the correct place to put your new textures.Do you PBO in with your Island PBO.. or .. do you PBO your texture set and put into your mod folder?? .
Many thanks on this in advance
Wedge