You create your design and then print on the special paper. The process then works like any water-slide decal. Just cut out the decal, dip in water, and slide it into place. For use with ink jet printers the decal must be coated before dipping.
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Close up of the printed decals on a model

The tried and true way to letter a model. Available at any hobby shop these are more difficult to work with but give the best results.