You start by making the TrueCrypt volume. Note that this is probably most useful for small file containers, since trying to hide a 500mb volume in a .jpg picture of your cat, isn't going to fool anyone. You can forget about plausible deniability. So keep in mind when you make the TrueCrypt volume, to try to keep it at a reasonable size, depending on the type of file you plan on combining it with. Once you make your file container, just combine it with the file you want to use. Do not put anything into the volume before doing this, because you will lose that data. Combining the picture of your cat and the TrueCrypt file container will make the volume unusable, for now.
When you try to mount the file the first time you will see, "Incorrect password or not a TrueCrypt volume." This will happen a second time. On the third try you will see this.
This will happen everytime you try to mount the volume. Just click ok and TrueCrypt will mount the volume.
As I said early, when you combine the two files, the container itself will be unusable. This is because the file table of the partition will become invalid. So when you try to navigate the the volume the first time you will get an error and will have to reformat it. Just do a quick reformat of the volume and it will become usable again. Make sure to use the same file system you used to make the file container, otherwise you will get an error. Once you reformat, you will have a working TrueCrypt file container hidden within another file.