1. open TankCreator2

2. Browse for the source folder.
C:\Documents and Settings\Owner\My Documents\My Games\Dungeon Siege 2 Mod\Bits\

3. Browse for a different folder to save your mod in and give it a unique name.
name the extension based on where it will go.

C:\Documents and Settings\Owner\My Documents\My Games\Dungeon Siege 2 Mod\Mods\
=.ds2mod

C:\Program Files\Microsoft Games\Dungeon Siege 2\Resources\
and
C:\Program Files\2K Games\Dungeon Siege 2 Broken World\resources\
=.ds2res

4.set the output type to ds2

5.press the "create" button.

6.you now have a mod file that can be placed where you want it.
  warning: some mods are not compatible with Broken world and some mods are not compatible with Dungeon Siege 2.
           All the Items generated in this tutorial should be compatible with both.

7.Now that you have your mod you can empty the bits folder and make a different mod :)

8.To extract or view a mod use "Tank Viewer 2".
  Make sure to extract the mod to:
C:\Documents and Settings\Owner\My Documents\My Games\Dungeon Siege 2 Mod\Bits\
  if you wish to try it out in dungeon siege2 mod.
  You can also rename the extension to .ds2mod if it is ds2res to get it to work in dungeon siege2 mod.
  then you just place it in:
C:\Documents and Settings\Owner\My Documents\My Games\Dungeon Siege 2 Mod\Mods\