Step 3: Rough cutting the blade--the easy part
A hacksaw or jeweler's saw and several blades
An angle grinder with a hard wheel and flap wheel
Files (if necessary)
Necessary protection (glasses, gloves, jacket if you don't like sparks)
And a steady hand
Step one: cut out your blade using a hacksaw or jeweler's saw. If you're using a thick piece of steel, go with the stiffer hacksaw. I recommend standard, medium-to-fine blades. If you're using a relatively thin piece of metal and you have a jeweler's saw, you can cut out a pretty close profile which will save you some grinding in the next step. I just cut out a rectangle around my basic shape--using a hard, steel-cutting wheel, you should be able to grind through the excess pretty quickly. See picture one, below.
Step two: slap that blank in a vise and start grinding. Use the hard wheel on your angle grinder to cut away excess metal from the profile of the blade. This should be pretty self-explanatory; you're just cutting out a shape. The different colors that appear along the edge are just products of low-level heat changes in the steel, and won't compromise its strength or finished look. Remember those colors, though, you'll be using them to your advantage later when you heat-treat the knife. See picture two below for an action shot, and three for the completely cut-out blade.
Step three: grinding the edge. Use the flap wheel (the one with flaps of coarse sandpaper) to gently and EVENLY grind a slope to the middle of the steel. Don't go past the center, because that will give your edge a dip--and you don't want that. Picture four is of the job at this step, half done. Grind the other edge the same way, until the edge becomes an edge. If you think you're starting to go too far, STOP! Be patient. This is possibly the most delicate step in rough-shaping the blade. Work the edge evenly, so that it's straight and consistent. See below, picture five, for the finished shape.
EDIT 6/28/10: You can also hollow grind the edge if you have a wheel, or a belt grinder with a wheel attachment. Go to this link (http://www.instructables.com/id/A-Simple-Hollow-Grinding-Jig/) to see a jig I made to make this easy.
Step four: drill rivet holes. Make sure you use a drill bit the same diameter as the rod or rivet you plan to use. They can go anywhere and be any number, so get creative. Sorry, I don't have a picture of this...if you can't figure it out, try making something simpler, like a birdhouse.