The easy way is to use the pokered disassembly. When you compile the code, it will automatically compress any PNG into the compressed sprite data that the game uses. So all you would have to do it to edit the sprite using any image editor, like Paint or GIMP.
If you don't want to use the disassembly, then it's a little trickier. again, you could edit the sprite as a PNG using any image editor, but then you have to save the file into a .2bpp format (using something like TileMolester) and then use a compression tool like WoodPression to convert the image into the compress sprite data that the game uses.
A more detailed tutorial can be found here:
http://hax.iimarck.us/post/6651/#p6651
The tool can be found in the OP of the linked thread.
Hahah, I am trying, believe me. There are just so many features I am adding!
Here is another update:
I've added lots of cool features over the past few days:
I added in plenty of the Held Item effects. There are ones that boost damage based of a specific attack type, ones that reduce the damage of a specific attack type, and ones that increase the stats of the pokemon holding it. More will be added soon.
There will also now be an additional ways to train pokemon. Each pokemon can learn up to 8 'skills', which will improve their performance in battle. Without spoiling too much, some of these skills include better stats, better damage for certain attacks, and better avoidance of some stat effects.
My idea is this: for a pokemon to learn each of these skills, they have to compete in a series of tests. These tests will be a series wild pokemon battles that put your pokemon at a disadvantage (based upon the skill they are trying to learn). The pokemon will have to win each battle in a row, and the disadvantage may (again, depending on the skill) grow with each battle. When they accomplish this feat, they will earn the 'skill', which will permanently stay with that pokemon. Oh, and in trainer battles, some trainers pokemon will know some of these skills.
And I've also added a lot more behind the scene things/things that I won't want to announce yet. Keep checking for more updates.