1) Connect your Kindle to your computer via the usb cable
2) When the window showing the folders on the Kindle opens, make a folder called "pictures" in the root of Kindle drive or SD card.
2) Make a folder inside this folder (this could be called "Family" for example - this will become a "book" on your Kindle
3) put your pictures inside this second folder. Supported formats are jpg, png, gif.
4) Disconnect your Kindle from the USB cord and in Home screen press Alt-Z. A new "book" (matching the name of your second folder) should appear. Open it to view your pictures. When you see a picture you like, press alt-shift-0 and then F which will make the picture your screensaver and make it full.
Your current screensavers that came with Kindle will no longer show, until you remove the "pictures" folder and sub folder.