This is a very short and simple tutorial that would not be really necessary if there were not some tricks that can turn your modding experience into a nightmare.
To edit / create settlement models for strat map, follow these steps:
1 - Download IWTE.
2 - Go to the strat_map tab. The buttons are self explanatory. Click Read Strat Cas and navigate to the folder where the strat map settlement models are. (they are .cas files mostly in data/models_strat folder), double click a .cas file, the tool will load the file. Now click Write Strat Cas to MS3D and the tool will do exacly as the button says. Go to the folder where the .cas file is and you will see your .ms3d file there.
3 - Open it and edit the way you want. Pay attention to the group models inside milkshape 3d. There is a symbol group, which is a box. This is the position of the army flag inside the settlement in the campaign map. You can move it but I dont recomend this since it uses to cause CTD. You can edit the rest of your model freely, always paying attention in the materials assigned to each group.
NOW VERY IMPPORTANNT:
You should edit your file while keeping it already inside its final destination folder, because when you create materials in milkshape 3d to assign to your groups, you will need to select a texture for them and define a path for it (the folder where it is located). When the game is launched it will look for the texture in the folder where it was when you selected it in milkshape, so dont use textures located in your desktop or somewhere else. I recomend locating your texture inside the texture folder near to your model (exactly as vanilla game does).
Resuming: Before selecting textures in milkshape, place the texture in its final destination in your mod, only then use it in milkshape.
Save your .ms3d file. Now you have a .ms3d custom made strat map model.
4 - Go back to IWTE and to the strat_map tab, click Read MS3D Strat Cas, select the .ms3d file you just edited, the tool will load the file, then click Write strat Cas. Its done. Now find the .cas file you just created and rename it to match the original one, replacing it (keep a backup of the original one!)
Thats it.