Your .dds file probably isn't in the right format. Make sure that it's in saved in the DXT5 format. If that still doesn't work, can you attach the .dds file so I can try myself?
I used that format and it didn't work, I also exported the .dds that came with it, and tried to import, but that didn't work either. Here is a link for the .dds: https://db.tt/jpauPLjr
I want to edit the Oppie_Flag_AU.package, and put my own design on it. I open the SimCityPak, open the package,and get to the screen shown on the image. I click Import, click on my .dds(which is the same size as the flag shown) , then it crashes. Am I doing something wrong?