I would add just a couple things. You can use any image that is 400x300 and saved in .png format. Just name the file NXXX_Neighborhood.png where 'XXX' is the appropriate number for your neighborhood. You can use an in-game "snapshot" or any other image you might want.
It might be useful to state explicitly that files in the Storytelling folder are in JPG format, whereas the neighborhood screens are in PNG format. It probably makes a difference.
You can do this entirely outside the game if you prefer, by simply opening and saving the files in your image-editing application. The trick is finding the file(s) you want in the Storytelling folder, but if you browse in thumbnail view from within whatever image-editing software you care you use, it isn't too difficult to find the right one(s).
Play around with "camera view" before making your screen capture by pressing the TAB key and maneuvering using the mouse and arrow keys. Since someone mentioned it in the thread, you take a 400x300 .jpg screen-capture in-game by pressing the "C" key--this is saved in the Storytelling folder. You can also capture your entire screen (in Windows) by pressing the Print Screen key and then pasting the image into a new document in your image-editing software; this creates a .bmp file with the same resolution as your display (i.e., 1024x768 or whatever your is). You can then save it as a BMP, JPG,or whatever format you prefer. While this gives you a much higher-quality image, you need to reduce it to 400x300 if you want to use it in the game.
Using an application like Paint Shop Pro or Photoshop, you can combine multiple snapshots from your neighborhood into a single image by cropping, resizing, and rearranging the different images in layers (in Photoshop you need to flatten the layers before you can save the image in any format other than PSD). Depending on how well you know your software, you can use various blend and fade effects to create the kinds of neighborhood screenshots that come with the game (the ones that show the game characters). I've never taken the time to learn that stuff myself (I should), but I was still able to create a neighborhood screen without much trouble.
Please keep in mind that I am a NOT a graphics artist, and I don't know any of the Photoshop fading techniques that would have made this look presentable to the public! Anyone with real talent could do much better without any effort, but at least you can see what can be done in very little time. The only effect I used was to use a basic neighborhood screenshot as the bottom layer, set to about 60% opacity so it would serve mostly as background. As it is, I covered up most of it anyway.