Ok, this tutorial will show you step-by-step how to texture a model in Milkshape, and also how to UV Map it. I am assuming you have the latest version. This tutorial using v1.8.1b (the latest at this point)

How To Texture Your Model:

• First open your model (you should know how to by now).

• In the side bar, click materials. This is where you upload your texture to assign to your model.

• Around the middle, you should see a button that says NEW. Click on it. This creates a new material. (where your texture goes)

• Now that you've created a material, it's time to upload your texture. Above the NEW button, you should see four different buttons. Two say <none>  on the left side, and the other two on the right say None.
  Click on the first <none> button.

• Now a new window should come up. This is where you pick your texture. Make sure it is square (multiples of 2: 4x4, 8x8, 16x16, 32x32, 64x64,128x128, 256x256, 512x512, etc.) When you have your texture, click open.

• Now the side bar should look something like this...

• Now that we have our texture, it's time to assign them to the groups of you're model (the individual parts). Now click the groups bar on the side bar. Now select the group(s) you want your texture to be added to by double-clicking them in the box or clicking the select button.

• Now that you have the group(s) selected, go back to the materials section. Look where you made the new material, there should be an Assign button. Click it! Now you will see that the texture was added to the group(s) you selected! You have now textured a model! If you have multiple textures you want on your model, you will have to make extra materials.

How To UV-Map Your Model:
UV-Mapping is an excellent tool to use in difficult situations, like when your texture is smudged on side of your group. In this section, I will show you how to fix this by using UV-Mapping.

• Assuming that you have your texture uploaded, and assigned already, switch the side bar to Model. You now have to select a face that the texture will show up on. You can do this by clicking select. Then at the bottom where it says select options, click face. Now select one face.

• Now that you have your face selected, open up the Texture Coordinate Editor (CTRL+T). It should look something like this...

• On the right side bar, there should be two drop-down boxes, one is where you select the group and one is where you pick a side (which I'll talk about later). In the box with the groups, select the group that the face is in. Now the texture should pop up in the preview box.

• Now select the Region button (this is what you use to select the section of the texture to appear on a face). Then make a box around the part of the texture you want to show up on the face that is selected.

• Now that you have done this, next to where a button says Remap ,there will be a second drop-down box. this is where you select which side the face you selected is on. So if you selected the top face, you would click top etc.

• Once you picked the side, click Remap, and Vuala! (I know I spelled that wrong), you have UV-Mapped a model!