I'm sure others will describe it better, and there are undoubtedly other ways of doing it too. This is the way I tried out the technique.
Basically you cut a template out of heat-resistant plastic, cut the fabric larger than the template and clip any inner curves, place the fabric under the template on a piece of aluminum foil, use a small paintbrush to saturate the edges of the fabric, fold up the aluminum foil around the edges, then iron on top of the foil on both sides and allow to dry thoroughly. Can re-use template and foil.
This was an extremely slow and tedious method of applique for me, so I only tested it out and then went back to my usual freezer paper method of doing machine applique. This is the method Harriet Hargrave explains in her books, although I prefer to use paper paste instead of glue sticks.