There are plenty of applications around for making pixel art and a lot of them are free. For a very complete list of all the pixelart Tools, Tutorials and References go here. In this tutorial I will focus on pixel art in Photoshop, which was used in creating the art for Up Down Ready & Snow.
PS is very competent in creating pixel art and lacks no features other applications have. This tutorial aims more to people who are already fairly familiar in PS, and would rather not go through the process of learning a new software and shortcuts. All it takes is takes is a bit of tweaking to set you up. In this tutorial I'll be using CS4, but don't worry if you have a previous version.
I prefer to be in the painting workspace, this doesn't really matter, but it's good getting used to for whenever you're drawing. The real first step is to change the image interpolation. You do this by going to Edit -> Preferences -> General and changing it to "Nearest Neighbor" in the interpolation drop down box.
Bicubic interpolation will blend the in between pixels when we scale or rotate our image which is less than ideal with pixel art.
Original -> Bicubic -> Nearest Neighbor
In the example above, I've scale an image down then back up again and you can see the difference between the different interpolation methods.
While we're in the preferences options, go down to down to Guides, Grids & Slices. Set the setting to the same as the image below, and make sure you're working in pixels and not centimeters.
The Pencil Tool. By default you will be using the brush tool, but working with pixels you want to use the pencil tool. Simply press and hold the brush Icon in your tool box and select the pencil tool.
Next thing you want to change is your current brushes, with square ones. Click the drop menu for you brushes -> Click the tiny arrow in the top right and select square brushes. Click OK when Photoshop asks if you like to make the change.
Working with the grid can be frustrating if you have snapping on, so make sure it's turned off by ticking it off. In View -> Snap and View -> Snap To -> None.
Another frustrating default is in the info panel. Get it up by going Window -> Info or simply hit F8. The info panel is perfect for taking measurements, with the marquee tool something I found myself doing quite a lot while working on Up Down Ready.
In the info panel press the drop down menu in the top right corner and open up the panel option, change the ruler unit to pixels. Activate the ruler with "ctrl+r".
When you're working with your image, you want to be zoomed in so you can clearly see the pixels you are placing. Nothing less than 700% is preferred, the problem is that it's hard to get a scope of the overall image when you're zoomed in to that level. A character that looks fantastic scale up 1200% might be a mess at 100%. That's why we're going to activate a second window for our image. Window -> Arrange -> New window for xxxx.psd and we'll keep the second window at 100%
That's it! That should cover the most vital changes. I've probably forgot something small but the general guideline is: Always tick off Anti Aliasing, use threshold of 1 and point samples.