Nah, this is really old early s1 stuff. Ignore it, it's no longer valid information. The current LFS version has the files as default blank skins (jpg format) in the skins folder and interior dds files in the dds folder.
I presume that's why you are asking; you want to edit the interior texture and the car skins, yes?
If you go to the Nvidia texctures webpage you can download for free the dds plug in.
that allows you to open dds texture files in photoshop , etx, and edit them to your hearts content.
The files you will want to edit (lights, seats, dash, etc.) are the various interior.dds files you will find as above explained.