After importing the custom mesh, you can assign the textures to the mesh. Assigning the textures in Blender is only needed so you can visualize your work on the mesh more easily. It isn't needed for rigging the mesh or for compiling the model for use in the game. Thus, these steps can be skipped, if desired.
Open blend file or import an smd file.
Hide skeleton.
Select UV/Image Editor panel.
Select mesh.
Go to Edit Mode.
In the Properties pane, select Material mode.
Select a material from the list.
Click on Select button under the list.
(Make sure no other materials are selected on the mesh).
In the Properties pane, select Textures mode.
Click the New button (New sub-panes will show).
Click on the Type field and select Image or Movie.
A little ways down, in the Image sub-pane, click on Open button.
Find the image file and select it.
Click the Open Image button.
Figure shows the result of opening the image file.
In the Properties pane, select Material mode.
In the UV/Image Editor pane, click on Browse Image to be linked icon.
Select the image just recently opened.
Go to Object Mode.
Check that the texture is showing on the mesh properly.