100% cotton jersey t-shirts
scissors or a cutting mat & rotary cutter
Make sure that the shirts you're using are cotton jersey (preferably 95% or more!) and not any crazy blend of fabrics. Lycra makes horrible t-shirt yarn, as does modal. Polyester and cotton blends seems to work fine though! I had one of those in my stack and it worked just as well as cotton - not sure why. :)
Also, make sure the shirts are not ribbed jersey fabric - they will not curl properly. I bought one to try it out and it came out a mess. I'll still use it, but it won't be pretty!