[edit] Steps

Cut or mold small pieces into whatever shapes you choose. Stars, balls, and boxes are common shapes. You can also try swirls, mini foods, creatures, or household items.
Using a nail or skewer, poke a hole all the way through each bead.
Spread them on a cookie tray. If you're concerned about them sticking, place oven-safe parchment paper underneath.
Bake them for 25 minutes at 275ºF (or temperature stated on clay package).
If using plain white clay, paint them with acrylic paint, water colors, or finger nail polish.
Let the paint dry.
String them into a necklace, earrings, pendants or your own creation.
Show them off to your friends.
After the bead has baked and cooled, put a thread through the wire loop.

[edit] Tips

If you want to make dangling beads (like pendants), take a short piece of wire and make a loop at one end with pliers. Leave at least 4mm of wire at the other end. Stick the straight part into the top of a bead, making sure it stays.
Use 2 colors and knead them together to make swirly colored beads.
Since paper can withstand baking temperature, try folding some card stock paper like an accordion/fan to lay your items into the folds.

Set a timer and don't bake too long. Towards the end of the baking time, you may want to keep an eye on your creations so that they don't burn.
Be careful working with the hot oven and beads. Let the beads cool before handling them.
No matter what type of clay you use, always check the packaging for baking instructions because times and temperatures may vary.
Do not bake in the oven with food. Make sure the room is adequately ventilated.
Children can make beads, with adult supervision. Make sure children do not eat the clay. An adult should bake the beads and keep out of children's reach while cooling.
Be sure to preheat your oven before putting in your clay. Test with a separate thermometer to ensure proper baking temperature.