Cut out your design, then peel off the paper (the paper side will be 'sticky' looking, like normal interfacing).
Now you can iron the design onto the t-shirt (put the 'sticky' side down onto the right side of the t-shirt).If you want to decorate your design with buttons, beads, embroidery, etc, you can do that now.
At this point you may be tempted to stop, but I'm not sure whether it would withstand a lot of washing. Better stitch it to the t-shirt... You can choose between hand-stitching (a small blanket-stitch would look nice), and machine sewing (a small zig zag stitch works well; do a test on a separate piece of fabric for the right stitch length and width).
If you decide to use your sewing machine, I recommend ironing the single-sided interfacing onto the wrong side of the t-shirt (directly behind your design). This is to stabilise the fabric, so it doesn't pucker. You can iron it on quite lightly, as you'll need to cut around the stitching later. I haven't used water-based stabiliser yet, but I'm sure it would do the same job.
Now stitch around the design, making sure that you stay as close to the edge as possible. If you go in too much, the fabric may fray; if you go over the edge too much you may end up with little holes where the stitches go into the t-shirt (it won't look good after a few washes).
Turn the t-shirt inside out and trim the iron-on interfacing as close as possible to the zig zag stitching (you can pull it off carefully). Don't cut through the t-shirt!!
If you've come this far, congratulations! If you've been able to make sense of my instructions, you should be finished. Please leave a comment if you've tried this, had problems or successes, or any other tips. Happy sewing!