NOTE: Before you start this tutorial, you will need KMPlayer (a free video program that will let you capture screenshots to make your gif).
Open KMPlayer and open the video file. Then click CTRL (Command) + G. This will bring up the 'Frame Extraction' dialog box. Settings should be the following: see here. Now find the part of the video you’d like to capture and press start on the dialog box and then stop at the end of the section. This part is done. Yay!
Now for the actual giffing part. Open Photoshop and make sure the animation window is open via the 'Window' Menu > Animation at the top. Click the 'File' Menu > Scripts > Load Files into Stack, bring up a dialog box. Press browse and then find the screenshots you just took and select them. For Tumblr’s file size restriction of 500kb, selecting 10 - 16 screens would be best. Click Ok once done. It takes a while to load the layers so sit tight.
Now that the layers are loaded, you will sharpen each layer ('Filter' Menu > Sharpen > Sharpen). If the animation window is in (this) view, change it to frame view by click (this) button. Click the Animation Option button [x} and choose 'Make Frames From Layers.' Go back to the option button and now choose Select All Frame and then Reverse Frames. Click the play button on the animation window panel. I usually set all the frames to 0 seconds but it’s entirely up to you. Make sure it’s set to 'Forever' so it loops.
Now for the part us Tumblr giffers hate, saving it to fit Tumblr’s guidelines. Go to the ‘File’ menu > Save for Web & Devices. Remember 500KB is the goal. Follow the instructions to reduce file size here. Click save and you are done! Upload to Tumblr. I’m proud of you! :)