How do people actually "create" items to be used on Sims2?

Answer 1

By either downloading (sometimes free, sometimes not) 3D models to be colored, or by creating their own 3D models or meshes. They are colored in a graphics program.

Each object has its own mesh which is part of what takes up sooooo much memory.

I've linked a tutorial that explains in good detail if you want to know more! =)