First step, you're gonna need some kind of image editing program. A lot of people use just regular 'ole MS Paint for sprite editing since most computers have it and it's free and simple, but other things like GIMP or Photoshop will work just as well.
Next thing you'll need is a base, at least starting out.
The Spriter's Resource has a lot of stuff to choose from and start with, just search for "Pokemon". Typically, just recoloring a sprite isn't allowed, so some actual effort is going to be needed. Made easier with the advent of Gen V, you could very simply just mix and match parts from various sprites to get something close to your liking. Alternatively
Tun's Sprite Tutorial is very, very helpful, so feel free to follow along and see how it goes!
It's good to have some kind of inspiration or references on hand or nearby for the design you're ultimately going for. You could definitely try to just freestyle it, but references are never a bad thing.
Once your sprite is all done, all that's left is submitting! I believe the actual submission thread has details on that, and might have something on making transparent images but I'm not entirely certain.