I have cast on 21 stitches for the example in red and 30 stitches for the example in blue, but you would need to cast on the number of stitches given in whatever pattern you may be using.
For the red piece I used 5 mm needles and for the blue 3 mm.
Step 1: Knit Five rows
Step 2: The picot edge row
knit 1, (yarn round needle, knit two together) to end. You will see that you have knitted a series of "holes" but still have the same amount of stitches on the needle as you started with.
Step 3: Continue knitting
Now your can knit your sleeve,sweater or hat in the normal way. Remember the picot edge can be used to replace the ribbed edge to keep the work flat. I have knitted about 8 rows in stockinette stitch to show the effect on the red example and a few more rows than that with the blue.