I am completely new at this software, and using dds files so I'm not sure if I'm just missing something that is obvious. I got a dds file from online that I have edited completely by opening it, sending it to editor, saving, reloading from editor, etc; however after saving the file as a .dds (DDS DXT1) and reopening it, the image scales larger vertically and since the resolution stays the same (1024x768) I end up losing the bottom portion. When I initially reload the file from the editor before saving it as a .dds the image looks correct (I made sure that my new image was the same resolution as the initial image I was editing). Why would things change after saving and re-opening? I am using Paint as my editor since I do not normally do this kind of editing.
The important thing to know is that textures are different from simple images.
They are intended for use in DirectX games and as such need to conform to certain guidelines. The main thing concerning you here is that textures must always have dimensions that are a power of 2.
Because DirectX only accepts textures in valid sizes DXTBmp will automatically scale an image to a valid size.
Power of 2 means that width and height must be 1, 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024, 2048...
So your 1024x768 image is not a valid size. 1024x512 would be ok as would 1024x1024. When you save a 1024x768 image as dds it will be scaled up to 1024x1024. Similarly if you saved a 200x100 image it would be resized to 256x128 as the nearest valid size
If the original image you started with was really dds and was really 1024x768 it wasn`t a valid texture to start with. While it is possible to create dds files in any size you like only valid sizes will work correctly in most games. If you are working with a game that does use dds in non-standard sizes (for example for interface screens or other non-rendered bits) then DXTBmp is not the means to edit them I`m afraid