I'll post a different instructable on making the shorts from the brown knit sweater.
To make a shirt like this for a little girl, you'll need:
thin elastic long enough for the neckline
elastic thread if you want to try shirring the sleeves near the edge to make a little ruffle (that stretches around chubby little arms)
scrap of coordinating fabric for the applique
iron-on adhesive (I'd suggest Ultrabond in Lite or Featherlite), optional but helps keep the appliques from fraying while you sew them
coordinating and contrasting thread
I didn't use a pattern and couldn't find the measuring tape at the time. I held a piece of elastic up to my daughter to figure out how long I wanted the neckline to be when the elastic was at rest. I then sewed the ends together to make a circle.
I cut the sleeves off the huge t-shirt, then folded the neckline over around the elastic and sewed it with a straight stitch. The elastic gathered the loose t-shirt fabric enough so it still had some fullness in the shirt, but didn't sag around her neck. At this point, I put the sleeveless shirt on her to mark where I wanted to take in the sides. 3 year olds are sometimes hard to catch. I bribed her with some of her dad's pasta. I sewed a zigzag stitch along the sides with the shirt inside out, stopping where I marked the bottom of the armhole. I trimmed the excess fabric and turned the shirt right side out. I also cut off some of the extra length on the bottom.
Once I had taken in the sides (don't forget to take the shirt off your kid before sewing it), I was ready to add sleeves. I still wanted to use the rest of the silk for something else, so I was careful to not just waste the fabric. I try not to be wasteful, even with thrift store shirts.
**Even if something is cheap in monetary terms doesn't mean it's "cheap" in terms of the impact on the earth.**
I cut the sleeves off and cut some strips from the main part of the silk shirt to use as a ruffle. I snipped the seam of the original sleeves so I could lay the silk flat. I cut them into a rough bell shape; the rounded part would attach to the t-shirt, and the straight edge would be the edge of the sleeve. I then gathered the rounded part of the sleeve. I sewed a basting stitch (a simple straight stitch, as long as possible, with no backstitching on either end), pulled the bottom thread on both ends, and carefully shoved the fabric into gathers while gently pulling the thread tighter.
I later decided that the sleeves were still too loose and large, so I tore off the finished edge (silk is easy to tear; I first cut a snip in the fabric where I wanted it to tear, then ripped it along the grain of the fabric) and sewed a few lines around it in dark thread to secure it from fraying further and to add a little decoration. Or maybe I just added the dark brown because I couldn't stomach so much pink. I wiggled the fabric slightly as I sewed so that the lines of stitching would cross over each other in gentle waves. I then sewed a straight stitch around the sleeve about an inch away from the edge, using elastic thread in the bottom bobbin in order to shir them - that gives them a stretchy gather. There are other instructables with more information about shirring.
I opted to use a strip of silk that was twice as long as the bottom of the shirt to make the ruffle. I tore this also, deciding I liked the look of the sleeves and wanted to make it match. I sewed the waving lines of decorative thread (that also keep the silk from fraying too much) before gathering.
Iron on fabric adhesive should come with instructions. Usually you should place it with the glue side toward the back of the fabric you'll use for your applique. Then, run a hot iron over the PAPER side of the adhesive for just a couple seconds. The display side of the fabric should be face down on your ironing board. Cut out your shape, in this case a bird, and then carefully peel the paper away from the adhesive, which should now be stuck to the back of the fabric.
Place the applique, adhesive side down, on your shirt where you want it. Iron it for a few seconds, according to the directions on the adhesive. Most iron on adhesives will also require some stitching to keep appliques in place; otherwise, they'll fray and possibly come loose in the wash.
Thanks for reading! Post pictures if you make your own. If you don't want to make your own appliques, I have a couple in my Etsy store, and I'd be happy to custom make an applique you'd like. Send me a note if you have something in mind and I can post a listing just for you.