You need to use a 256 color bitmap. You may draw the letters in any order, but keep in mind that colors with indexes 253, 254, 255 are reserved.
A typical font would look like this:
From this, one can deduce the following rules:
Save your file as a 256 coloured PCX. Note that Photoshop strangely moves index colours 253, 254, 255 to index 1,2 and 3. Don't ask why :)