I make mine in Word, I can add designs and pick various fonts etc. I use fabric from my stash and treat it with Bubble Jet 2000 then iron the fabric to freezer paper, run it through the Ink Jet Printer and viola! A washable label - even in color.
Some notes:
If you use your own fabric, you MUST prewash it and dry it without any softener.
If you use your own fabric, you MUST pre-treat it with Bubble Jet 2000 (or similar product) or the color will not hold through the first wash (B&W will hold, color will NOT).
If you use your own fabric and Bubble Jet 2000 - follow the directions on the bottle with regard to pre-washing, treating, drying .. etc. All of the instructions are on the bottle.
You can buy the fabric sheets that are specially made for printing in Ink Jet printers - but I have found that it is cheaper to use my own fabric and buy the Bubble Jet 2000. It depends on how many labels you think you will make.
You CANNOT use a Laser printer with fabric!!! You can only use an Ink Jet.