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Wallpaper lists are basically files with lists of the paths to wallpapers.

An example list:
/home/xentalion/Images/Wallpapers/abstract1.jpg
/usr/share/wallpapers/default.png

Included with CWallpaper is a script for recursively building a wallpaper list from a directory, such as /home/yourusername/Images/Wallpaper
It is called makeList.sh.
Make it executable by running:
me@home:~$ chmod a+x makeList.sh
Then run it by giving the path to your wallpaper folder:
me@home:~$ ./makeList.sh ~/Images/Wallpapers/
And it will recursively generate the list for you.