Embroidery is something I've recently learned to do myself. Some of my first projects were portrait bookmarks of my kids' drawings from this tutorial.
I had no idea what to expect with a 5.5 year old, 4 year old and 2.5 year old (Grace at 13 is already an intermediate stitcher.) Well it turned out to be more of a hit than I could have imagined! Moses and Judah both completed their entire projects in one sitting and pretty much just wanted to do "stitching" the whole week. They're both on their 3rd projects now (which got interrupted by the birth of little brother, otherwise I'd be willing to bet they'd have several more done by now.) Clementine didn't stitch, but she colored her chick and then organized all my floss, specifically the pinks and purples. =]
So first mama drew the outline on some linen fabric (I like linen because it has an open weave and is easy for the kiddos to poke the needle through) then they colored them in with crayons and colored pencils. Then I placed some scratch paper over the drawing and lightly ironed them to "set" the colors.
Then I let the kids pick out what color floss they'd like and threaded a big tapestry needle for them. (Tapestry needles are big and somewhat blunt - perfect for Littles.) I taught them a basic back stitch and they got it right away!
The finished products! Aren't they amazing!?
If you're interested in embroidery, here's a couple great beginner's tutorials:
Wild Olive Embroidery Basics
Sublime Stitching Easy Embroidery Tutorials