The first thing to say is that this is not technically an inlaid ring. A true inlay implies that there is a recessed area that it filled with something else. This is done using a lamination technique. The first thing to decide, after you know the size of the finger it's going on, is what wood you're going to use.
Step 1: Choosing Your Inlay Material
It should be a hard wood, preferably with some interesting patterning. In this case I'm using a piece of rosewood burl.
Step 2: Making the Inner Sheath
The next step is to machine the sheath and retaining ring that the rosewood is going to be laminated onto. I used an old reliable Logan lathe. I decided to use Titanium because I can keep the inner sheath extremely thin without fear of it collapsing. The total width (the measurement from side to side) of the inner sheath should be wide enough for the width of the wood band desired, plus the width of both retaining rings, PLUS a little extra for grinding, finishing and polishing. The total thickness (the measurement from the inside of the ring to the outside) should really not exceed 2.5 mm, otherwise it gets uncomfortable to wear.
Step 3: Making the Inner Sheath
Bearing that in mind, the step on the inner sheath should be slightly taller (again for finishing) than the wood will sit when finished, and the retaining ring should have the same thickness. The flange of the inner sheath itself should be thin enough to allow enough thickness of wood so that it won't be terribly fragile. In my experience 1.25 - 1.5 mm works well.
Here's a formula to follow:
Start from the inside and work out. Decide on the ring size (A). Decide the total thickness of ring, multiply times 2 (once for each side) and add that to A, and that gives you C. Then make the step. Calculate B (which you'll notice is the same as the measurement for the inner measurement on the retaining ring) which is A plus the thickness of the the inner sheath (about .5 mm) times 2 (1 mm).
As far as the width, D being the total width of the ring (again add a little extra for grinding and finishing), E has to be wide enough to account for the wood band and the retaining ring, which should be the same width as the step on the sheath.
Step 4: Making the Wood Inlay
Then you are ready to make the wooden part of the ring. Now you can use the sheath to cut a hole and get a nice fit.
Step 5: Assembing the Parts
The wood should fit snugly on the sheath, but not so tight that the wood cracks. It is also a good idea to keep a lot of extra specifically for this reason. You may notice that this ring is not round. It has undergone a shaping process, but the same formula can be used for calculation, and just requires some precision carving to get the wood to fit properly.
Step 6: Affixing a and Pre-finishing
The parts are all laser welded together, the wood is ground down to the the appropriate thickness, and the welds are finished. Titanium is fun to grind because of the bright white sparks that come off of it. Care must be taken to not over heat the piece because you may burn the wood, and you can't really use water to cool it off because it may soak into the wood and cause it to crack when it dries off.
Step 7: Finishing
The last steps are to use fine grit sandpaper and wood hardener.