1.) Cut a 1-2 inch wide strip off the bottom (short end) of an old towel. I've found that a thread-bare towel works best - those plush towels are hard to cut through and a bit cumbersome once you put it on your kid.
2.) Fold your towel so the short ends are touching. On the folded side cut a half-circle so that when you unfold the towel, there is a circular hole right in the middle. (Start off with a small circle - if the hole is too big the smock will just slip off your kid's shoulders. You can always make the hole bigger if you need to.)
3.) Pop it right over your little one's head and tie the "sash" around his waist. His clothes will stay paint-free, you can use it to wipe up after he is done, and then just throw it in the wash to be used again and again. Moses loves his, as you can see. :)