I've been working on some AVR circuits lately, and of course I've run into some limitations with my prototype board.  Namely, it's enormous, and I prefer to work from a CAD design (thanks Eagle).  In order to shrink my design I decided to try the toner transfer PCB method.  It goes like this:

1. Print mirrored circuit design on transfer paper
2. Prepare copper clad board (scuff and degrease)
3. Iron toner sheet onto board
4. Soak in water to remove paper
5. This is a step I added-bake the board in the oven at 400 degrees for 10 minutes.  My initial attempts had problems with the toner lifting from the board.
6. Touch up the traces with a marker\paint
7. Etch

After trying this out, I can tell you...it is not easy or free of frustration.  It is cheap, though, and it would be great for prototyping surface mount boards.  My board is a through-hole board...so I still have lots of drilling to do.  A more promising method might be to use high resolution screen printing to get the resist onto the board.  This way, one screen can be used to etch multiple boards...and the annoyance of transferring toner is taken away.  A company called Circuit Bridge sells just such a product called StencilPro.  Their high resolution offering is at 200 threads per inch.  I'm not sure if that's per square inch or not, but it should work for many applications.

My results are below, thumb shown for scale.  The original image is on the left, with the result on the right.