A good graphics editor is a big help. The old MSPaint worked but it is certainly -- nay, absolutely -- nowhere near superb.
...is it meticulous hand painting, copied directly from a photo, down to the last detail?
Before I had a scanner and no connection to the internet (actually, still don't with my personal game computers), that's basically what I did (since I like making variations, I still do some of this) but very lax on the true detail. There are many, more talented artists around but I've honestly seen worse than even my older ones.
Is it a matter of going out and getting pictures of aircraft, and literally cutting the pictures out, and putting them into position.
Much closer once I got a scanner. Hand drawing works, too. I don't have a digital camera but that would be better. In the case of a plane, it's best to have a side view (fuselage), top and bottom views (wings, elevators) and front view (windscreen, prop, radiator, engine - depending on plane type). Different angle shots give a lean as to any additional shading you may wish to provide in texturing. Prior to scanning, any cutting I did was by editing the picture (at the time, in MSPaint). That was particularly necessary for biplane fuselage textures because the wings and struts needed to be removed from the picture (although they may be seperately refered to for shading purposes).