Guess that'd be someone like me.
Damage in SFC 3 is done pretty simply. You still have the DP system inherited from SFC 2, but in addition to that (or replacing the old SFC 2 system), you now have individual damage textures for each texture. There's a damage texture for the normally seen texture sans lights, and a damage texture for the illumination texture.
And they're named like this..
Let's say that you have a hull texture and a hull illumination texture.
Hull.bmp 512x512 (as an example)
Hulli.bmp 256x256 (again, an example).
Now you want to port to SFC 3. You now need two additional textures:
Hull.bmp
HullD.bmp <-
Hulli.bmp
HulliD.bmp <-
Usually, these can be around 1/2 to 1/4 the original size for the normal texture, and usually 1/2 for the illumination texture. So maybe:
HullD.bmp <- 256x256
HulliD.bmp <- 128x128
You can also usually get away with 8 bit textures here. Now, the main thing to remember with these are.. HullD.bmp (the name in this case) would be the normal texture all ripped to shreads. The Evil Dead texture, struts hanging out, open fires, really mucked up. Full color of course. The HulliD.bmp texture here would be the same, however, this is the illumination for the normal damage texture.. so the lights from the fires, maybe glows from hot spots on the hull, that kind of idea. These are revealed when the section fired at in SFC 3 takes damage.. a bit at a time. So when the nacellle (as an example) has taken so much damage that it'd have been the equivalent of blown off in game.. the full damage texture would be shown, and if it was possible to repair.. that texture would slowly revert back to the normal nacelle texture. If the ship turned into a dark area.. the glows from the fires on the nacelle would start to show, again, fading off as the nacelle was repaired.
I like to treat these new textures as completely new textures.. I just build a layer on top of the normal texture and set things to cuisanart in my mind. What'll this part look like when the skin is blown off? I add struts, fires, glows, etc.. go nuts here. And then I create the illumination map from there.
For the new textures to show ingame, remember that you need a capital D right before the .bmp whether it's an illumination or normal texture and you'll be fine..