How do you create or edit CursorXP????

That's because it's not a graphics editor!

You have to use a graphics editor, like photoshop or paintshop pro, that can handle alpha blended png's...I'd also think that the sizes of the finished images in a cursor would make them difficult to do much editing to.

I'd suggest you read the guide before you do anything, I notice you tend to assume way too much!

CursorXP Guide
https://www.stardock.com/products/cursorxp/guide.asp

what i meant was if i downloaded a theme, then how do i edit it??? there's no option to see the source image or whatsoever.

Rename the file to whatever.zip and you'll be able to extract the source images, but like I said the images are shrunk down to a pretty small size so editing them would be quite limited and your result probably would leave a bit to be desired. BTW if you do not have the PLUS version you are wasting your time.

This isn't about those cursors with six fingers is it?

If what you want to do is construct your own theme your best bet is to start from scratch and follow the CursorXP guide.