GIMP Normal map plugin
Works fine on normal GIMP. Dunno about GIMPShop, but AFAIK it *should* work...
That will make a normal map out of bump (elevation) map. It has a pretty good array of options, too (IMHO).
However, you will still need to convert the normal map to DXT5nm (DDS) format for it to work in FS2_Open. This you can do with the NVidia DDS tools.
As to what the normal maps do... AFAIK they pretty much add specular per-pixel lighting (for main light sources, ie. suns) to the graphics, and the information on the normal map... well, changes the normal of that particualr piece of the model's surface, which results in light being reflected to different direction than a flat vertex would. Which is interpreted as intrusions and dents on the surface by us humans.
Height maps add to the illusion by adding a parallax shift between "low" and "high" portions of the surface as the model turns on the view.