Find and select the pictures you want to use on your background. Pictures need to be in the same folder or album. You can select multiple pictures in the same album by holding down the Ctrl button on your keyboard. Then select the collage button. You can select it in one of two places as seen in the photo below.
Then on the left hand side of the screen you will find the box below that will allow you to change the pictures to be how you want them. Want more tips on how to make your collage the way you want it? Check out this post. Do you want to add text to your background? Check out this post.
Just below where you set the page format, there is a button that says desktop background. Hit the button and your collage will be finished and applied as you desktop background.
You can make any picture in Picasa you desktop background by simply selecting the picture, clicking the create menu at the top of Picasa and selecting 'Set as Desktop.'