A DDS or DirectDraw Surface file stores graphical textures' data in a compressed form which is decompressed by the GPUs. Microsoft DirectX© Texture Tool (DXTEX.EXE) is used to create the .dds file. DXTEX.EXE is an application provided by Microsoft(as one of the tools in Microsoft Directx SDK) for viewing, doing conversions, and creating more complex surfaces in the DDS file. A download link for Microsoft Directx SDK is provided below. [Download Link: http://www.microsoft.com/en-in/download/details.aspx?id=6812]

Real-time hatching is rendering 3D illustrations with a non-photorealistic technique where closely spaced strokes reveal the material properties like texture, shape, form and lighting of objects in a scene. Variation in quality, length and angle of strokes generates varying tonal and shading effects. The darker an area, the denser are the strokes while white space means lesser or no strokes.
To create hatched illustrations, Tonal Art Maps (TAMs) are required. TAMs are basically mipmaps that have an added dimension of tone, generated in a sequence from coarser to finer levels. Coarser levels of TAMs have lesser number of strokes and enlarged gaps. The finer levels progress by adding new strokes to fill these gaps between the strokes and maintain a constant tone. Tonal Art Maps (TAMs), generated with different scale widths, are saved as DDS. 

You can create TAMs in 3rd Party applications like Adobe Photoshop or CorelDRAW etc. The generated bitmaps can be exported as PNGs which can be then imported in the DXTEX application to generate the DDS. (Sample DDS files for use with Hatch texture can be downloaded from this link : here)

1) Interface of DirectX Texture Tool

2 ) Creating a New Volume Texture