I made one for my friend's two-year-old (who is currently obsessed with clocks) and it went over well.
Step 1: Gather supplies
A clock set**
spray paint (optional)
*The book needs to be hardcover with a reasonably simple cover (not too much text). It should also be quite thin and large enough for the clock hands. Save money and get your book at the thrift store, no point in ruining a new book and it doesn't have to be in perfect condition.
**I got my clock set at Michaels. I've also seen them at Wal-Mart. Easy to find. Pay attention to the length of the "stem" of the clock. They come in 1/4 to 3/4 inch lengths depending on the thickness of your book.