A variety of audio programs, available for the Mac and PC, allow you to import, trim, add fades, and create ringtones. Some are commercial, whereas others are free. Mac users can use GarageBand (Mac OS: $99 as part of iLife, apple.com/ilife/garageband), Amadeus Pro (MacOS: $40, hairersoft.com/AmadeusPro), and iToner (MacOS: $15, ambrosiasw.com/utilities/itoner). Windows users, as well as Mac and even Linux/Unix owners can use Audacity (free, audacity.sourceforge.net/download). Audacity lets you edit Ogg Vorbis, MP3, WAV or AIFF sound files and then save them in AAC/.m4a format. Simply change the file extension to .m4r and voila, you have an iPhone ringtone! iRinger (free, iringer.net) is an ad-supported/donation-ware option for Windows PCs that lets you edit and convert virtually any audio format and export it to your iPhone; it even lets you extract audio from videos.
There are even some web-based services that let you upload a song, select a portion of it, and have it turned into a ringtone… all while you wait (see Audiko.net).