@Akirainblack: It matters (in some circumstances) for the K2/3/4 version of the hack, so for the sake of simplicity, and because it's a good habit to take, I unified the FAQ on that point

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The *other* difference is, of course, quality: if you feed the Kindle a full-color image (or a full 8-bit grayscale image for that matter), the dithering will be done by the hardware, and it's a crappy, crappy dithering (fast, but crappy) compared to what any good decent image processing software will do.
@chipf0rk: Yup, ImageMagick would be good, that's what the cover mode uses

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You'll need the colormap, which you can rip from the hack (linkss/etc/kindle_colors.gif).
Scaling+Dithering:
Code:
convert in.jpg -filter LanczosSharp -resize 758x1024 -background black -gravity center -extent 758x1024 -colorspace Gray -dither FloydSteinberg -remap kindle_colors.gif -define png:bit-depth=8 -quality 75 out.png
And in case it isn't clear, the scaling part:
Code:
-filter LanczosSharp -resize 758x1024 -background black -gravity center -extent 758x1024
And the dithering part:
Code:
-colorspace Gray -dither FloydSteinberg -remap kindle_colors.gif -define png:bit-depth=8
Script that to loop around whatever your want in your favorite scripting language, and boom.