.RAW files are the texture files MTM2 uses on the .BIN models. Each .RAW file stores an image in black and white, and the .PAL and .ACT files store the colour.
The .RAW files is the actual texture that is mapped to the model. To open and paint a .RAW file you will need a program like Paint Shop Pro or Adobe Photoshop, there are other programs that can also be used to edit .RAW files in one way or another, but for the sake of arguing let's say that we are using PSP. When you open a .RAW file you will have to specify the size it will be opened as. MTM2 only uses two sizes of .RAW files, which are 256x256 and 64x64. When opening one of these .RAWs check the filesize: if it is 64Kb it must be opened as 256x256, if it is 4Kb it must be opened as 64x64. Once the file is opened it will appear in black and white (greyscale).
The .PAL file contains the colours of the .RAW file. Once the .RAW is opened you can then open the Palette File - that is, the .PAL. Once opened the image should appear in colour. While painting a .RAW file you can increase the colour depth, as many of PSP's functions will be disabled in 256 colour mode; however, you MUST change back to 256 colours before saving both the .RAW and .PAL.
MTM2 uses a different format of the palette file with the extension .ACT. It is this file that stores the colours of the .RAW and which MTM2 manipulates to create different lighting conditions (the .PAL doesn't actually play any part outside of PSP). A program like MDMRE's Palette Master will convert .PAL to .ACT for use in the game and vice versa.