the song has to be made into a ringtone, then you'll have it as an option for your alarm.
I use Garage Band + iTunes to make my ringtones, but if you google iPhone ringtone maker, you'll find some free programs for both Windows and Mac that will do it for you.
A ringtone has to be no more than 30 seconds, but I believe that a song for an alarm has no time limit, it just has to have the .m4r tag (instead of .mp3 or .m4a)