In this case, I cast on loosely an even number of stitches (48 stitches in this case) on dp needles and joined. I knitted as follows:
With MC, K3 rows (these are the rows that will be folded to the inside and stitched when finished)
With CC, K1 row
With CC, *K2tog, YO, repeat from star to end of round
With CC, K1 row,
With MC, K3 rows
Continuing with ribbing (or other cuff method of choice)
Here is a pic of the inside of the mitten. I very loosely stitched the fold to the inside. If time had not been of essence, and of course the method I chose certainly is acceptable, instead of knitting those beginning three rows, I would have knitted 2 1/2" and folded into the inside of the cuff for a neater, more professional appearance. You can also initially select a provisional cast on to accomplish this but this is probably not for a beginner knitter. Here is a link describing this method.
Hello Yarn (<--click)- this gal's blog is on my Google Reader list. I've attached the link to her picot "Selbuvotter "mittens. They are gorgeous.
The "Selbuvotter" (<--click) mitten book is on sale at Knitpicks for 40% off till February 13th. I am odering it this week. The book itself is not filled with pretty colored pictures but the patterns are to die for. There is a Yahoo Group dedicated to these mittens. It is not for the "faint of heart".
Purlwise - this blog explains the provisional cast on method for the picot edging. There is lots of very valuable knitting information on this site.