Okay. So last year for a project I did I made a pillow with this design:
I CAN SEW! Domestic goddess alert - marriage proposals now accepting.
I used fabric crayons for the letters - they're really good, actually. Fabric markers work quite well also. I had printed out the top design and just stuck it under my fabric - it's quite a sheer polyester/cotton blend - I think it's 80% polyester and 20% cotton. The synthetic helps the crayons stick.
You just draw the design on - some of my friends draw the reverse onto paper and then transfer it on, but it comes out very faded and it would've been too difficult with all the letters and such.
You draw your design on then you lay a sheet of paper on. Iron it until the design shows through the paper - don't use too much steam, because then the paper will go all mushy and gross. Ew.
I also drew the silhouette with the crayons, and then cut it out and appliquéd it onto the material. I used Vliesofix, some German appliqué thing - also known as Bondaweb. It's a roll of paper with some sticky glue stuff that only becomes sticky when you iron it. I think you could just use interfacing or some other product - ask at your local craft store or wherever you shop for material. Once your material has the glue on it, stick it onto your material and sew the edges with a zig-zag stitch.
Finally I added a zipper and sewed the edges together. I filled the pillow with this white hobby fill stuff and now it's all fluffy :)\
It took me AGES to sew my zipper but I found this rocking tutorial online of how to sew a zipper at makeit-loveit.
So there's my pillow! It looks really cool and quite a few people have complimented me on it :D