Hey friend,
I personally use
this tool to convert image files to DDS files.
For the texture size, you indeed want resolutions in the power of 2 (2, 4, 8, 16, 32, ...) for texture compression and mipmapping and sometimes anisotropic filtering reasons, so I recommend scaling them beforehand or checking the box "Resize Pow2" of the linked tool. DDS supports textures in any resolutions, but game engines might not.
For texture format, DXT3 gave me the best results (BC2 texture compression is the one you want)