Here's a method that doesn't use a tool:
https://www.youtube.com/watch?v=zfO6_hRNKeE
I think the tools use basically the same method, except you thread the fabric end through the hole and use the tool to pull the fabric through. This probably makes tighter knots than the Amish no-tool method.
I don't see a lot of difference between the Nancy's Notions tool and the more traditional blue plastic tool used for "toothbrush" rugs; both have a hole in one end.
For those who are wondering, here is a link to both types:
http://www.nancysnotions.com/product...rn+and+tool.do
http://www.nancysnotions.com/product...+needle+set.do