I found the following site that explains what you need to do, I will simply summarize for my specific application/needs:

http://www.lockergnome.com/usrbingeek/2007/05/03/how-to-make-custom-drive-and-folder-icons-for-your-mac/

1. Make an image that is 128px by 128px in Photoshop (other other program)
2. Save as a PSD or as a PNG file with a transparent background
3. If you don’t have Apple’s Developer Tools installed, install them now
4. Open “Icon Composer”, /Developer/Applications/Utilities
5. Drag your PSD/PNG into the 128px square and confirm the defaults for the dialogs
6. Save this file to your computer
7. Download Icns2Rsrc
8. Open Icns2Rsrc and File->Open and select the file you saved from step #6 above
9. It will save a file with the same name and location (with a .rsrc extension)
10. Command-I that file and and the folder you want to use the new graphic
11. Highlight the graphic in the upper right of the .rsrc file and Edit->Copy (Command-C)
12. Highlight the graphic in the upper right of the folder and Edit->Paste (Command-V)
13. Close both “Info” dialogs and the folder should now display your custom graphic in Finder (including Cover Flow view).