To add Chinese characters, go to Control panel > Regional settings > Keyboard > Install languages. Add another language and select Chinese. If you want a dialect, you can add it from the same menu, then use the ALT + Left Shift to switch between languages. In Picasa, access the edit mode and select Edit Text. Choose the font and switch languages and then you will be able to add Chinese characters. You can also use DaFont to download and install Chinese fonts that you can use in Picasa.
To install a font, go to Start > Run > fonts. Drag and drop the TTF file into Fonts window and then you can select them from Picasa.