which software do i need to create a complete civilization?(colors, name, leader, etc...)

You'll need an image editor, a DDS converter (GIMP plug-in, DXTbmp or the standalone), a text editor or specialised XML editor and a bit of know-how. That's all you need. If you want some help, ask one of the civ-makers who're around.

i have now photoshop 7.0, dds converter 2, notepad (for .xml)...
what now?

That's all you should need. If you're not sure how to go about it, then see this tutorial. (http://forums.civfanatics.com/showthread.php?t=148507)

for xml i use freeware - pspad - it's very useful imo
but notepad or notepad II or other tool is also good for editing