Crowdsourcing tee-shirt design site Threadless hosts an exciting new contest: Your challenge is to create a tee design inspired by a video game you make up!
Go for it, pixelers! It doesn't need to be pixel art but it needs to be good! Submit before July 8; winner takes 2000 $!
Make sure to read the legal terms as things have been evolving at Threadless recently. Also check the guidelines and download the submission kit (use of the provided photoshop templates is not compulsory, but you must mockup your design placement in some way).
Post links to your submission in the comments!
Aaaaaand I managed to sneak one in 1 hr before the deadline, and went to bed at 7 am. Wtf with my life?
Soon on PJ!
I'm in too!
Here is my submission: https://www.threadless.com/designs/zomg-zombies-on-my-gameboy
I'd appreciate some voting, if you like the design of course! 
And you ask your own questions in the future otherwise it's straight to your room with no desert. 
I don't think it's video game related. I think you recycled this piece for the contest 
. It's ok, no worries. You'd like to win the contest so would rather use something really nice like this one than recreate something specifically for the contest.
On another note, I mean no disrespect but I don't think you'll get much sympathy votes for your old computer. It's not like you need a powerhouse to pixel or that contests are the only way to make money. 
Well, that clears a lot up. Don't use layers much, but now I guess it's a good time to learn. Thanks for writing this up!
Now I finally have a tiny chance of fixing my broken computer screen after 4 years!
A wise old babysitter 
Reporting on template. Let's assume you own and are familiar with PS basics and layers; let's also assume you created your hi-res final design in the hope of getting it printed; for instance a 3000x3000 px file. Finally let's assume you want to use the template in a basic way without big modifications.
1- open the template in PS; display layer palette.
As jal said, you see a large square with 'your design goes here' text and diagonal lines in the middle, and a small shirt in the corner also with YOUR DESIGN GOES HERE on the chest.
The point is to replace those 'your design goes here' texts with, respectively, a medium-sized version of your design, and a small-sized version of your design.
The layer palette shows 3 layer groups: 'Shadows', 'Your design', 'Colors', and 2 individual layers: 'Remove this layer' and 'Background'.
You can develop the layer groups by clicking the arrows: 'Shadows' has one layer with drop shadow effect; 'Your design' has one layer with YOUR DESIGN GOES HERE text on the shirt; 'Colors' has many layers with the shirt colors.
The 3 layer groups include all the shirt mockup layers and those only; the 2 bottom single layers are for the background image of your design.
2- You need to copy and downscale your hi-res image so that it fits into the 1200x1200 template; you will paste it on a new layer that will replace the 'Remove this layer' layer.
You may add other layers of your own choice and making: detail close-ups, a scanned shirt texture, distressing, vignetting etc. Keep it visually clear though!
Keep the lower left corner free as TLess will add their logo and the challenge logo there. Example.
3- you then need to copy again and strongly downscale your image so that it fits on the shirt mockup; you will paste it on the YOUR DESIGN GOES HERE layer in the 'Your design' group.
If the design is larger than the shirt and spills on the background as a placement choice, create a layer mask in the shape of the shirt from any of the color layers and apply it to the design layer.
Unlock the mask from the layer so you can move the design within the mask.
You then select the tee color of your choice in the 'colors' layer group, et voila.
You might have to adjust opacity of the shadows layer, maybe other layers too. You can also adjust the 'Shadows' layer levels.
You can create a 'highlights' layer as explained in the tuto I linked before, could look good on dark tees. Layer blending modes SHOULD be set in the correct modes but it doesn't hurt to check and experiment ;)
You can adjust or hide the drop shadow in the shadows layer too.
You can move the mockup around, provided you lock all three groups together, or select them all before the move; you may create several mockups with different types of tees, different colors or design variants but remember to keep it clear!
Make sure the 2 'Your design goes here' layers are removed or hidden.
4- Save and keep the final template in psd format; go out for a beer walk and look at it when you're back: you'll likely find stuff you want to fix.
Create a flattened version (you can just 'save as' jpeg and PS will automatically keep the layered psd and create a new jpeg file; alternatively flatten the psd but don't save it unless you don't mind losing your layers forever!
There is no filesize limit but it's best to keep it reasonable; I'd recommend setting the jpeg quality slider between 7 and 9, according to the preview. Check and re-check the jpeg before submitting anyway!
Manu, because PJers just assume I'm a babysitter and/or personal assistant 
Drawing Man and others who have asked me see Manu's post below.
1- the subkit templates only work with layer-group supporting software: photoshop (not elements), maybe gimp.
1b- I have not used these templates yet; I will open one soon and report.
2- this tuto explains how to create a layered template from a jpeg photo, and hints at how to use them. Those model photo jpegs are now here, and not at the link posted in the tuto.
3- use of the subkit templates is not mandatory. You are free to give placement info the way you like. See how this multiprinted designer does it.
Why would peeps PM jal about this instead of asking publicly anyway? There is also a Threadless forum for noob questions. Post at your own risk!
Is anyone here a Threadless user and understand how the templates work?
I've had some PMs regarding this and opening the templates just has a huge blank with a tiny shirt on the corner with a load of layers 
On the contrary, they are more strict than other sites, because they had to pull shirts with Pacman, Space invaders and StarWars inspired designs, among others.
The Marvel, Sesame St, Disney etc stuff you saw are from sponsored challenges in partnership with those brands. They did sponsored Minecraft challenges (oh the horrible, horrible submissions in their thousands) too.
This present challenge is not sponsored, it's 100% Threadless and copyright caution applies.
Not sure I understand what you mean! When you save as jpeg in PS you get a dialog to set quality vs compression, right? High quality will still mess with pixels but it shouldn't be too obvious/ugly.
Threadless is fairly loose with the copyright stuff. If you browse their incredible library of shirts, you'll find everything from Marvel to Sesame Street. I think as long as its not exactly representing the content you are using for your piece, its fine. Just take a look at the "Gaming" section of Tees and theres tons of stuff ripped from Nintendo and other well known games.
Someone's already done a Dr.Mario Doctor Who mix on there and then had comments saying they can't use the Who characters cos of copyrights. Never mind.
What does "Easy answer: save it at low compression/high quality." mean?
I guess it's your time to shine with your Dr.Who sprites :P
You don't have to wear it, just collect the prize money...
This is like 90% people submitting already-made, completely unrelated-to-videogames artwork.
Easy answer: save it at low compression/high quality.
Better answer: create a clever submission file with close-ups, fabric texture, whatever. This presentation is what will appeal to voters, or not. I recommend to score a few hundreds of designs to get ideas about good and bad presentations ;)
hmmm...will Medici finally pay for itself
"Save your file as a jpg."
What does one do for pixelart technically so that its pixelly. Does anyone know?
Nah, not me. I'm not really into gimmicky t-shirts. Although...
Time for everyone at PJ to recycle every mockup they've ever made.
AAAAHH Threadless is pretty much my entire shirt wardrobe. I would love to see someone from here win this contest!
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I snuck one in as well. This challenge actually inspired me to do an original painting from scratch just for this.
And in turn the painting inspired me to a game. I just hope I can convince my programmer/slave to actually do it.
Enough talk:
www.threadless.com/designs/mechapede