For this instructable, you're going to need...
1 x-acto type of bladed cutting tool.
A roll of contact paper.
Discharge paste. It's like a gelled bleach used for removing color from fabric.
A steam iron
Sharpie or other comparable marker
Wooden table or other safe-to-cut on material.
IMAGINATION. (cue epic horns and trumpets)
Step 1: The drawing part.
Draw whatever you want, but keep in mind that you've got to place all the random little "islands" on the shirt when you're done. I chose something simple. A beard. I promise it will make sense when this instructable is over. Also, draw it on the shiny plastic side. If you want to do words, do words. You won't have to reverse them or anything.
When you're done drawing, cut it out with your trusty crafting knife. Peel away the layer of plastic from the paper and stick it down on the shirt. Make sure it's flat and there are no bubbles around the edges.
You can tell I messed up a few times. It's alright. It really has nothing to do with the final result.