This is the current technique used by Monkey Business, a small home based compagnie that makes custom shirts and other cool stuff.
They use this technique because it is the simplest way to transmit you art onto fabric.
If you want to see more shirts made by MB, head on over to they're website!
Step 1: Your Image
it can be a color image... just turn it black and white, mess around with the contrast a bit until you're happy with it, then print it out on acetate paper (clear plastic paper used for projectors)
In this particular stencil, i wanted it to be big, so i put it on two pages, if your doing a multiple page stencil, make sure you have abit of over lappping room, so that your not lost when positionning the second (or third...) stencil.