The first step once all of the materials and tools are gathered is to prepare the book. I wrap the first couple pages and the front cover in plastic wrap to protect them from the glue. Next I squirt glue onto a plate and brush it onto the pages of the closed book. People recommend a water glue mixture but I have found I like to use just glue. It dries clear and hard. Try and brush with the grain of the pages, also I usually do 3-5 coats of glue.
Next you take a pencil and draw an outline of where the hollowed portion of the book should be. After outlining where to cut, take a razor blade and cut along the lines. As you cut the shape peel the pages out of the center.
After cutting through 50 or so pages I usually brush the sides of the inside with glue and let it dry before continuing (it just adds a little stability). Continue cutting and peeling out pages until you reach the desired depth.
Finally re-paint the outside pages and inside pages with another coat of glue.
For some books I have place the title page in the bottom, or a picture from the book. In this gift book I measured out the inside edges and cut out felt to fit inside. I glued it with the elmers glue, but I think it would work just as well (and faster) to use hot glue.