First thing on making a faction mod is figuring out what faction you want to make and find references for everything, from weapons to language, and from uniform to symbols.

The faction I'll be creating in this guide will be ArmA 2's ChDKZ, aka Chedaki, aka Chernarussian Red Star Movement.

I used the game itself as reference, spawning in units and looking at what they wear, what they use and how they look. Finding references might be tricky because using Google (or any searching programs in general) might prove hard. This is true in my case, because there isnt a pack of photos of all the classes from ArmA 2, only images of some infantrymen.

Now, after finding reference, you should start up SDK and create a mod. The window for that pops up each time the SDK is launched. You dont have to name your mod anything special or cool, since its just for the directory. I will be calling my mod folder "chedaki" for easier navigation.

After creating a mod, you will be greeted by the Mod Blueprint window (or smth like dat). This is where you set up the mod folders. This is needed to sort everything properly and let both the SDK and the game itself to use all of your mod's assets.

For faction making, you will need 3 folders: Factions, Kits and Characters.
Factions - this folder is for Faction Blueprints, that store the faction info, kits, flag icons and etc.
Kits - this folder is for Kit Blueprints and Character Variation, first is for Kits, the second is to set character visuals to kits.
Characters - this folder is for Skeletal Meshes, Material Instances and Textures.

After you name all the folders you're going to create, the mod blueprint should look something like this:

Note that you can add more folders if you wish so. It could be for Weapons, Buildings, Vehicles and so on.

After finishing your Mod Blueprint, you can save and close it, and go to your mod directory. It should look something like this:

This is where you need to press Add New > Folder and rename your folder to the names you put in Mod Blueprint.
After doing all that, it should now look like this:

Your mod folder setup is done! Now we are moving more to the real faction creation. Look at your references, and start looking through SDK content folders. To do that, just press the little folder button near your mod name on top of Content Browser (the thing on the bottom of screenshots).
For the Chedakis, I will need a Chi-Com rig, baggy pants, beanie and a balaclava.
Chi-Com I can find in Rolling Stone Content > Characters > NVA and one of the characters.
Baggy pants I can take from Sandbreaker Content > Characters > Insurgents and one of their character.
Both of these I wrote down as an example of where and what to find.

By the end of that section you will have all the assets you might need. Just remember to note everything you need, and export if necessary.

After setting up mod folder, finding references and SDK assets with your desired parts, you can start exporting assets to your PC. This is pretty self-explainatory, but it is needed to make things. The SDK doesnt come with any 3D model editor or something, so you will have to use Blender to edit your models. Basic Blender knowledge would be very useful.

To export an asset, right-click on it and find Asset Actions > Export... and click it. This will let you save a SDK asset to your computer, edit it in software and etc.
(Note the Asset Action button on the very bottom of this screenshot)

After exporting character skeletal meshes the second thing you should do is Duplicate Material Instances for your equipment parts. This is needed to keep the original Material Instance of asset intact, while allowing editing said asset.

Optionally, you could also copy the Texture Instances, but this is only necessary if you're going to re-import and not just import the texture.
After duplicating everything and moving it all to respective folders, this is what one of them should look like:

Now, we are going to do the hardest, but the most interesting thing of all - do the character models.
First, open up your Blender and delete everything there. Then, import a Skeletal Mesh of a character you want to base your model off of. For me, that would be Rolling Stone's USMC Rifleman.

After importing your base Skeletal Mesh, your Blender should look something like this:
Now we can start editing the character.
Go to the Scene collection, and find your Skeletal mesh (i'll call it SK from now on). Delete all the LOD groups but the first one. This will leave you with the main model, that has the highest polygon number, all the materials and textures. Using this SK, you will be doing your characters.

After deleting LODs, select your SK, go to Edit Mode and separate the SK by Material. This will separate the model by different gear parts, allowing you to edit the model. This is how your SK will look after that:

Delete the parts you dont need, only leaving the ones that you do. Parts that dont have to be deleted at all are Head, Hands and gear you want to leave on your character, everything else can go away.
I'll be deleting everything except for the shirt and backpack.
Next, add more SK of different characters you want to take gear from. For me, that would be Insurgent, NVA and other ones I forgot about.
This is how my character looks like after adding new parts and deleting the ones I dont need:
But none of these gear parts are attached to each other. This is where Armature Deform comes to use. Select your gear part and the Rootbone of your basemodel. Then press Ctrl + P and choose Armature Deform with Keep Transform checked (you can do that in your Bottom Left corner when parenting, just press Make Parent and check Keep Transform). This will allow for your gear to be attached to the skeleton of your base character.
Example of how it should look when choosing allat together:

Finally, we are done with your character model setup. The next thing you can do is edit gear with Sculpt mode. I use it to change some parts so that they fit better and not protrude with each other.

This ends character modelling! It might require more work than that, but in general its just that.
Keep in mind that your weight paint should stay on models. If your model doesnt have weight painting on it, the gear would just float.

Now, after we finished our first SK, we can export it. However, you should note that there are special requirements for exporting these assets back to SDK. This should be the shortest one, but it is required so that your character doesnt break.
When you're done, press Select > All and go to File > Export > FBX.
Name your model something like SK_Mod_Unit. For me it would be SK_ORH_ChedakInsurgent.

Next, make a custom export preferences using screenshots below.

Name the preset something like OHDExport, just to know what to use and never have to do this silly process ever again.

Finally, we are back to our SDK! Select your Characters folder, press Import and find your Skeletal Mesh. This is the model you're inserting in SDK as a character model.
Once done, you will be greeted by Import Options. All you have to do is choose Character Skeleton (SKEL_HDCharacter) and Character Physics (PHYS_HDCharacter).
Your window should look like that once its all done:
Everything else should stay as it is, since I dont know what some of them do, or they're just not important to us right now.
Press Import and wait. Done! Now we have a Skeletal Mesh at our disposal. For quick testing, go to Top Right corner and choose Preview Animation to choose one of them to check how character acts.
This is how my character looks right now:
Now we are going to do the most tidious, but one of the most necessary parts of faction making - Textures.

Its been a long run, but we are here at last. This is one of the final parts of doing your factions. To take the textures, just go to your duplicated Material Instances, find their Albedo textures, press the Magnifying glass icon and export the texture.
For the next sequence you're going to need some Krita or other Photoshop/Graphic Editor software experience. Not a lot, but still experience.
I'll only go briefly over what to do if you want to add camoflage.
First, add an empty layer and paint it white. Then, choose the Color option in Blending mode.
This will make your image gray. This is needed to keep the camoflage unedited and keep it to original color.
Then, add your camoflage layer and stretch it so it takes all of your uniform. If it looks too big, then just stretch it to half or quarter.
Then, chose camoflage layer and use Lambert Lighting (Linear). You're done adding your camoflage! I suppose. You can change blending modes if you dont like how the camo looks. If your texture is too bright, then dont use Lambert Lighting.

When you're done with creating your textures, you can import them to SDK. To change your Material Instance Texture, select MI and find Albedo, then just change it.
This is what it looks like.

To change your SK Material Instance, choose the SK and find Material Slots (should be first one), then choose your equipment parts and set your Material Instances to them.
(this is how it should look)

After applying all Material Instances, dont forget to add LOD groups! I do 4 of them (0-3) to lower the GPU and other computer usage, and make the game run smoother.

I got very tired, since I've been working for like 2 hours now on, but I have to end this. After tampering with all the Saturation, Brightness and what not, my end result for a regular Chedaki insurgent looks something like this:

Now compare it to the one we had in the beginning:
Yes, they both still look pretty similar, but the final result looks much more like the actual ArmA 2 Chedaki.

After you're done with your character models, go to a random SDK faction and take a Character Variation Datatable. It doesnt have to be a specific one, so you can take whichever you found first. They're usually found in the Common folder in Factions.
Delete everything there except for one, and just add your character and its arm model. To do arm models, just copy it from the model you took your shirt from, and change the texture.
Character Variations would be necessary when we come to making kits, so just make it right now to not forget about it later.

I've spent additional time on finishing my mod, since I'm making this guide and mod both at the same time. This chapter will talk about setting up your Kits and adding a Faction blueprint.
Copy kits from a faction you want to use, I'll be using kits of my other mod. Change kit names corresponding to their specialization.
After renaming all kits, go inside each one of them and set their weapons, equipment and gear.

This is how Kit menu looks like. I think you can figure it all out without my help, right?

For this specific kit, primary weapon would be AK47, it will also have F1 grenades and RDG-2 smoke grenades, as well as an Ammo bag.
In the very bottom thats offscreen you can edit your kit visuals, like name or icons.

Next, go to some SDK Content folder and find a Faction Blueprint, duplicate it and move it to your mod folder. Then, go inside and change everything you need.
This is how a finished Faction Blueprint looks like (at least for my faction):

This is where it all ends. This is the final chapter that actually talks about developing a faction. I've spent like 4 hours doing it. Not a lot, but not a bit either.

When you're done with your faction, and you think its ready to be published, go to Top Right corner, press File > Package Mod and choose your mod.

Wait until its done, then go to File > Publish Mod and choose your mod, adding your description and thumbnail image.

Everything else is a matter of doing a thumbnail, changing description in Steam and making it all public.

After all of this, your faction mod is finally done.

By the end of this guide, you probably made a faction, and its probably good, maybe even better than mine. I really want to thank everyone who made my mods popular and thank Bluedrake for creating this absolute beast of a game.
We really need a lot more mods for this game, and I want YOU to make them.

[The following message was deleted by the Chinese Communist Party for violating the law]

Godspeed, rereez out.