A Chair Rail (or dado) was originally put in houses to protect the wall from damage when pushing away from the table. The standard was 36 inches from the floor.
Nowadays it is used more for architectural design and aesthetics, and they tend to be put wherever the designer wants them. The other problem is now they are not just thin, they can be almost any size.
Mine are placed with the bottom of the rail at 39 inches above the floor, height is 5 1/2 inches, and depth goes from 1/4 inch at the edge to 1 1/2 inches in the center.
Needless to say, when I wanted to turn my unused living room into a library, this created a problem. I wanted 3 full walls with shelves, but didn't want to remove the railing, and tall bookshelves need to be anchored to the wall. With a 5 1/2 inch thick rail, this was not going to happen.
I decided shelves that came close to the rail would work, but could not find any that weren't cheap looking for the right size. Nothing against IKEA and Target purchases. So I decided to go to Home Depot and build homey looking ones myself. Later on I will finish the room once I have designed small floating paperback shelves for above the rail.

Step 1: Materials Needed

Wood (see prep step for the size of wood planks to buy before the cutting)
$31 for shelving
$4 for plank moulding
$6 for other moulding
4 pine board shelves 1 x 10 x 30 (5 for paperback shelves)
2 pine board sides 1 x 10 x 36 (see prep step for the size of planks to buy before the cutting)
2 pine board 1 x 2 x 34 1/2 (to use as moulding on the sides)
1 36 x 31 1/2 inch piece of MDF; $7
2 pieces of moulding (any design you like) 32 1/4 x 3/8 x whatever depth you got
4 pieces of moulding 9 1/4 x 3/8 x whatever depth you got
4 bun feet (2 to 2 1/2 inches); $31
4 hardware kits for the bun feet; $10
Shims (just in case of cutting errors)

Tools
Kreg jig for pocket holes (easier to use if you don't know how or don't do biscuit joints); $100
about 20 Kreg jig screws; $4 for 100
Drill
Sander
220 sand paper
Hammer
Nails
Wood Glue
Stain (I chose Valathanes Summer Oak); $15 per quart and will cover 2 sets of shelves
Paint (Behr's Chocolate Sprinkles) to match the chair rail; $13 for a quart, or just by a sample

Note: In case you don't want have the Kreg Jig tool and don't want it, and you don't want the biscuit joiner either, you can use wood glue and some nails instead.

Step 2: Prep the Wood

When you pick out the boards at the local home improvement center, or lumberyard, check each one for bowing and splits. It takes a while, if you want perfect boards. It may not be possible at all, depending on the store's supply.
You will also need to check for pleasing looking boards. If you want no knots, you will have to go for a more premium board, so good luck. I like knots and rings, and some burn marks in mine, because it adds character. That's my story and I'm sticking to it.
If you buy 6 foot boards, you will need 3. If you buy 8 foot boards, you will only need 2 for a hardback case, but still 3 for a paperback case.
The 2x1s you bought for the sides come in 6 foot lengths usually, so you only need to buy one.
If you don't have a circular saw at home, or you are like me and don't own a truck, most places will cut them for you to size. You might have to pay a few bucks for it to be cut, but that might be better than spending $100 or more on a circular saw.
Sand them when you get them home, especially the cut edges, and any rough facing you find.

Step 3: Stain the Boards

Very simply, you should stain the pine shelving boards first (the 10 inch boards) on all sides and edges. This way you don't have to be dealing with painting in the tight corners, and possibly creating a mess. You should stain both the top and the bottom, because one side might look nicer than the other one.
The stain I used had polyurethane included so I didn't stain and wipe off, I just stained and let dry.
It depends on the stain you use how many coats you put on. I used three. One hour between coats to dry to the touch.
This will take about an entire weekend, depending on how much room you have to lay out the boards for staining and drying.

Step 4: Paint the Side Mouldings

Paint the moulding pieces, the 1x2 pieces, and the bun feet with one or more coats, depending on the color you are using. If you are staining them instead, you will follow the same procedure as the boards. I used paint that matched the chair rail so it would blend, and it made the shelves popped out a little bit against the light colored walls.

Step 5: Build the Frame (the Holes)

Now for the fun part.
This didn't take much time at all, with the Kreg Jig. I put the frame together in under 1/2 hour.
Set up the jig for 3/4 inch boards for drilling purposes. You will be drilling the holes in the underside of the shelves (not the side frame pieces). That way the holes (which you can fill with plugs or wood filler, won't be seen.
Put the board into the Jig, the bottom side facing you, and the 10 inch side against the bottom of the tool (the board should be placed in there tall, not wide) The guiding hole you will drill through should be 2 inches from the edge of the board.
Pull the lever to stabilize the board.
Use the Jig's drill bit in your drill, and drill down until the bit is at the end.
Pull the bit back out.
Loosen the board, and move it so the guiding hole is now 2 inches from the other edge.
Repeat.
Flip the board to the other side, and repeat.
This will make a total of 4 holes on the board. That is the only holes you should need to drill for a piece of wood under 10 inches wide.
Repeat this process for the other 3 shelf boards (4 if you are doing paperback shelving).
You will have a total of 4 boards, 16 holes.

Step 6: Build the Frame (putting It Together)

Once all the holes are made, it is just a matter of screwing the pieces together.
If you want, for extra stability, you can put glue on the edge of the board before putting the two pieces together, but Kreg says it is not necessary.
Lightly mark with pencil (or use painter's tape) the sides of the two 36 inch boards with the following measurements:
11 3/4 inches
23 1/2 inches
35 1/4 inches

Take the best looking 30 inch board and use it for the top.
Put this board square with one of the 36 inch boards, with the 30 inch board edge laying against the flat edge of the 36 inch board. In other words, the bookshelf will be 36 inches tall, and 31 1/2 inches wide.
Put a Kreg screw on your drill, guide in into the hole, and drill. The holes that were made by the Jig are at an angle, so the screw will go in at an angle. They say this makes for a stronger joining.
Repeat with the second hole.
Put the other 36 inch board on the other side, and repeat.
Put the next 30 inch board in place, so the top of the board is at the 11 3/4 inch mark.
Put in 4 screws (using glue if desired).
Put the third 30 inch board in place, so the top of the board is at the 23 1/2 in mark.
Put in 4 screws (using glue if desired).
The fourth board will go on the bottom, and should be the exact same distance, being placed at the 35 1/4 inch mark. This way the 36 inch board is the exact top and bottom of the shelves.
Put in 4 screws (using glue if desired).
If you used glue, let dry for about an hour.

Step 7: Adding the MDF Backing

Lay the bookshelf on the MDF, and trace the inside of the shelves with a pencil. This will give you the markings for the nails.
Put the bookshelf, with the side you want to be the back face up, on the ground.
If desired, put glue on the shelves for added strength.
Place the MDF on the shelving unit with the marking side up.
Using 1 1/2 inch nails, nail the MDF into place, with as many nails as you feel are needed. I used about 5 on each shelf, and an extra one between shelves on each side, for a total of 26 or so.

Step 8: Put the Bun Feet On

The only item you will need to supply to attach the bun feet is a screw driver.
Following the instructions in the hardware kit, attach the hardware to the bottom of the shelves, and screw on the bun feet.
I put the hardware kit flush with the front and back, and a couple of inches from the edge on the sides.

Step 9: Placing the Moulding On

Lay the shelves on the ground, open side up.
Put glue, if desired, on the top and bottom shelf fronts.
Take the 32 1/2 inch moulding pieces and place on the glue.
Using 1 1/2 inch finishing nails, tack the moulding down.
Put the 1x2 along the side of the bookshelves. It should be a snug fit, so hopefully you won't have to sand or cut the edges to fit and repaint.
Nail the 1x2 with 2 inch finishing nails.
Flip the shelves on the side, and repeat with the 9 1/4 inch moulding pieces, one at the top, and one at the bottom of the side.
Flip the shelves to the other side and repeat.