You need a graphic editing program of some kind. Create a new document sized 160x120 pixels.
Find the image that you will be creating to accompany the movie its attached to. Then open your image editor. For example you can select a frame of the movie and copy / paste it into your graphics program.
Once you have your image completed save as a JPEG (compression 4-6) with the same filename as the video you are using it for. Rename the .JPG extention to .THM and upload the movie and thumbnail to your memory stick.