I made these stockings for the girls last year (although it was Z's 3rd Christmas already - ooops). They are reverse applique with felt.
The top of Z's stocking is embellished with ric rac poinsettias from a tutorial I got from a Handmade Holiday edition from Martha. (I love those magazines, although last year I had to search for weeks before I finally found it. Barnes & Noble is probably a safe bet, if you're looking for one.)
You can probably tell how to make them by looking. You just hand sew a length of ric rac into a circle by putting a stitch through every other "zag", if you will. Or, in other words, you stitch through the valleys and leave the mountains unstitched. Then embellish the center however you like. I used seed pearls attached with hot glue.