This is how to take an image, turn it into a stencil, and then put it on a t-shirt.

Here are some photos of the t-shirts I've made: http://flickr.com/photos/brianballantine/sets/72157594475277703/

Step 1: Gather the Materials

Step 2: Acquire the Image

Find an image on the interweb. High contrast/high res is best. This one isn't very high-res, but it will have to do.

In your favorite image editor (The Gimp), crop the image down to what you'd like the stencil to actually be.
Then, using inches, size it to the actual size you want it. I made mine 7" but in retrospect I should have made it a little bigger.
Duplicate the layer so you always have the original to go back to. Then use the Brightness and Contrast tool (Tools->Color Tools->Brightness-Contrast in The Gimp) to create a two-color image (black and white).

Once the contrast is adjusted, select by color and choose a black region of the image (at this point the there should be very little grayscale).
Create a new layer and fill the selection with red. Hide all of the other layers or insert a white layer between the new red layer and the others.
Use white and red "ink" to fill in spaces and connect all of the white. In the final stencil, everything that's white will NOT be painted. If you were to stencil red on a white t-shirt, this is how it would look. Make sure to connect all of the white. Leave no white islands. Also, I use a drawing tablet for this step instead of a mouse.
Notice I'm doing all of this with completely free and open source software.

Print out the stencil and glue it face-first to the mylar w/ tiny little dabs of glue. Press it firmly and add some tape. If the paper moves, it can be a drag.
Use the Exacto knife on the cutting board to cut out all of the dark areas. Take your time with this part because it's hard to fix mistakes. I use an exacto with a flat blade and press and lift to make cuts. This step can take a while.
Once all of the dark is cut out, You should be able to carefully peel the paper away from the mylar. Then cut off the extra Mylar (you'll use it later) and tape paper around the outiside of the stencil to make a frame or a shield to keep things cleaner when it comes time to put the stencil on the shirt.

With the extra mylar, draw some words by hand. I use a pencil and some engineering paper to keep things sized well. I also remembered that the stencil was 7" wide, so I made this the same.
Cut this out as you did the previous one.

Place the stencil you just cut out on the shirt. Put something (like some newspaper) inside the shirt, behind the stencil, so the paint doesn't bleed through. A little tape won't hurt.
Roll and mix the paint in the palette with the roller. Uniformly cover to whole roller and make sure it is thick enough that it only takes a couple rolls, but not too thick so that it doesn't roll.
Hold the stencil on one side, pressing down hard, and roll away from where you're pressing a couple of times, covering the entire stencil area.
I like to layer colors. It adds depth to the design. But be sure you leave plenty of time for the paint to dry before applying the next layer.

Once the shirt has dried overnight, dry iron the back side of the stencil full-blast for a minute.
That's it.
Notice some of the other shirts I've made with this technique