Current questions and answers regarding the map editor.

The editor really doesn't see it. But no one uses the editor; instead, they create an integrated mod. You can explore the developers' maps and see its principle; it's quite simple.
Clarified: the format isn't just dds; its subtype is tf_dxt1.
Personally, I don't use Photoshop for editing dds files (I don't use it at all :P); there's a free editor called paint.net that does all this without any plugins.