The first thing we'll need to do is make the image. The image must be 1-bit/2-color/monochrome/black&white. You need to make sure that whatever image software can save the file in monochrome. A free program on every windows computer that can do this is MS Paint - its crummy but it does this stuff kinda well.
A nice thing you can do is zoom in and click pixels. Remember that stitches in knitting are not square, so you may want to squish your graphic horizontally just a bit before lowering its resolution.
Write down or otherwise keep track of the pixel dimensions for the next step.
Our software can't add new patterns to the memory file (we don't understand enough of the format to do so) but it can edit existing patterns. So what we'll do is make a blank 'container' pattern on the knitting machine. Then we'll edit the pattern on the computer and re-upload the file.
In this step, you're going to create the blank "container" pattern of the appropriate dimensions using the knitting machine control panel. This pattern is going to be 32x32 and will have pattern ID #901.
Press INPUT once more to exit input mode.
Repeat for as many patterns as you'd like to create (and for which you have space).
Follow the backup tutorial to transfer the knitting machine memory to your computer
Now you'll run insertpattern.py by typing in python insertpattern.py img/file-01.dat PATTERNNUM BMPFILE myfile.dat which will insert the BMPFILE You made in part 1 into the pattern # location PATTERNNUM and when done, save the new data file tomyfile.dat (so you dont overwrite the old file).
If you're looking for a simple way to accomplish all that file-wrangling, check out Davi Post's img2track software that combines many of the above steps into one handy program.
Lastly, we'll reupload the files to the knitting machine, see the next section!