Step 1: Edit photos
Note that I only printed the first two images. The second two are just to help explain how to use multiple layers for alignment. I found it helpful to cut the windows out of the top layer and place them on a separate layer in Photoshop. That way I could hide the layer with the windows temporarily while I dropped my images of mom, dad, Elie, and the squirrel onto a layer under the top layer for scaling. Since the windows are cut out and hidden you will be able to see the people through the openings and scale them to fit. Then you can turn the layer with the windows and doors on and off to test the flaps.
Once you have made the two layers for each page and a front and back cover you can print out all your prints either at home if you have a photo printer or at your local print shop. (I printed mine over the internet to the one hour photo center at Walmart.) I would recommend a matte finish which won't show fingerprints as quickly as glossy.
Step 2: Cut an old board book to size
As another alternative (which I'll probably try on my next book) you could glue the photos onto individual pieces of cardboard and then bind it yourself or take it to a print shop and get it spiral bound. Using an old board book as my base spared me from dealing with binding the thick pages but it ended up making it difficult to close the book due to the extra thickness of the four prints between pages. This isn't all bad though because it makes it much easier for a toddler to turn the pages since they stand apart.
Step 3: Cut the flaps
TIP: It's a good idea to plan your book before you start cutting so you know which images will be for left hand pages and which will be for right hand pages. Then when you are cutting the flaps always put the uncut edge toward the inside of the book. That way the flaps will automatically close when the book is closed. If you put the uncut edge toward the outside of the book (or top or bottom) you will tend to have problems with the flaps getting squashed or pressed into the open position.
Step 4: Glue the prints onto the board book
TIP: I used 3M Super 77 multipurpose spray adhesive. It worked great for this project but I have a very important tip. Don't spray a print and then immediately try to glue it into the book. You will get glue on your fingers and then onto the print and it will be much messier and more difficult than necessary. Instead, layout all your prints and spray them all at once, then wait 5 minutes for the glue to partially dry. After 5 minutes the prints will still stick very well to paper but will hardly stick to your fingers at all.
Step 5: To finish
One other minor detail I added was a title on the binding. I just printed out some text on my laser printer, cut it down to a narrow strip and then used clear packing tape to attach it to the binding. I also used the spray adhesive to attach single prints (no flaps) to the front and back covers.
By the way, if the whole process of making two layers and cutting the flaps sounds too complicated, you can still make a fun custom book for a toddler by making single prints in Photoshop (like image 3 on step 1) and just gluing those onto a board book.