The premise is simple, you slide your the male connector from your headphones though the small hole on the cable manager, then into you device like normal, wrap your cables around your device and flip up the little magnetic bit to keep them there.
At this point it is worth noting that you will have magnets in extremely close proximity to your device; if this bothers you then stop now. That said, obviously the creators thought it was safe, and I've used it with both my phone (flash based) and my Zune120 (HDD based) for a while and there have been no ill effects.
Step 1: Tools and Materials
Electrical tape in the color of your choice (Black or white recommended... just because)
A fridge magnet (the soft square kind is recommended)
Pliers (or anything you can use to cut or break your magnet)
Step 2: The Magnets
Step 3: The Body
First is the length from the hole to the first magnet. This determines where around the device your cable will wrap, this is mostly a matter of preference (mine measure about .5 inches) .
Second is the length between the magnets. If you plan on using it just to shorten you cable then you can make it small, conversely, if you plan on storing the whole length of cable you should make it larger; you should also factor in how bulky you cable is (my medium one is about 1.5 inches long, and the short one is .5 inches).
Now that you have determined the length, cut a strip of electrical tape .5 inches longer than twice the sum of length one (hole to first magnet and length two (distance between magnets).
Fold the strip in half letting only the end touch (image two)
Step 4: Magnet One
Step 5: Magnet Two
Make sure that your magnets will line up right (north to south) before you press the tape down