How to create spray for TF2 with VTFEdit. This method ensures that anyone can see your spray at its highest quality no matter their graphic settings.
 
If your image is not a square, open it in an image editor and crop it or extend the canvas size to a 1:1 aspect ratio. Make sure to delete the added pixels so that only your image and transparency remain.
 
1) Resize your image to 512x512 and save it as a PNG. If this stretches it then you use a lower value: 256x256, 128x128, 64x64, 32x32.
2) Open it in VTFEdit (https://nemstools.github.io/pages/VTFLib-Download.html). File -> Import.
3) Uncheck Generate Mipmaps, set the Maximum Width and Height to your image's resolution and click OK.
4) Go to View and check Mask.
5) Under Flags check Clamp S and Clamp T.
6) Save your spray (File -> Save) but do not close the program.
7) Go to Tools -> Create VMT File.
8) Replace everything before your spray's name with VGUI/logos/. It should look like VGUI/logos/sprayname
9) Go to Options and check all four boxes on the right.
10) Click Create and save it.
 
Done! Close VTFEdit and move both new files to Team Fortress 2\tf\materials\vgui\logos.
Your spray will show up in the dropdown menu inside TF2 in Options -> Multiplayer.
 
If your spray is bigger than 512KB it will not work in-game, you can check this under the Info tab in VTFEdit.
For animated sprays you need to import all frames during step 2, TF2 has a set framerate for displaying sprays in-game that cannot be modified.
 
Windows extension to display thumbnails of VTF files:
https://www.wunderboy.org/valve-hl2source-sdk-tools/#vtf_shell