Most DDS files can be edited in photo editors like Photoshop or GIMP, as long as a DDS plugin is installed. DXT10 files, however, are only editable in Visual Studio.
DXT10 files are most commonly used for menu and UI items. In most cases these can be replaced with DXT5 files without any negative results.
Ordinary textures are typically encoded as DXT1, whereas normalmaps use DXT5. A file may be opened in hex to view the current compression type which will be displayed in the header.
DDS files also often have mipmaps, which are lower resolution versions of the main texture. In most cases these mips may be removed without any negative impact. Removal of mips may also result in higher quality in-game visuals.
The .dds file format was created by Microsoft as part of their DirectX API.
File Breakdown and Analysis
A Breakdown of this file type.