Displacement Mapping!

How do I first make the map? Then how do i put it on my mesh?
Im just trying to learn it not really trying to make something spectacular.
Here is what my object looks like with displacement without the map.
I just want to make a little less hectic.

ok to make a disp map,…use lighter values where you want it to stick out, and darker values where you want it to go inward. load in a texture channel, click off col, and click on disp. also, the results depend largely on the size of your mesh.

Should it be a jpg image with greyscale?

Well I used on of my drawings to pracitice with and I had to subdivide like a mad man to make it look anything like the drawing.
Here it is:
What is displacement mapping used for? Does anyone have any examples of some good uses of it?

try putting a gaussian blur on the image to smooth it out, and also try scaling up the object a bit. and yes grayscale jpg. is fine.

What is Gaussian blur? And how do I put it on my image?

gaussian blur is just a variable blur. you can do it in photoshop, gimp, or most other graphics programs. just something to smooth it out.

a couple of things to bear in mind,

from my understanding:
displacement is effected by the following

1)image resolution (too low and displacement will pickup pixel edges)
2)image contast/brightness and colour sliders(in texture tab)
3)grey is 0, whiter is raised, darker is lower
4)displacment slider
5)nor slider
6)subsurface value
7)osa value (when dealing with fine detail)

what is it good for?
and my try

all the calculating is done at render time, so all your work untill render time is not bogged down, also a good artist or even someone with good clone-tool ability can create a complex model quickly, even if you only use it for skin type effects, scales pock markes etc it saves time.