Cut two fabric squares to the size you wish and place them face to face. Sew the edges together (I made these at works so they're hand sewn, but you can machine stitch just as easily) leaving a small opening on one side.
Trim the corners so they are curved with the stitching so you get smooth corners on the exterior. Turn the pillow inside out and use a bamboo skewer or pencil to push the corners into shape.
Stuff the pillow with cotton balls and use the skewer to push the cotton into place so you have a nice, even filling. Blind stitch the opening closed.
Bring down one stitch into the center of the pillow and tie it off on the bottom. This creates the nice depression in the center of the pillow. For other types of pillows, I put a bead in the top and bottom of this stitch to look like a button.
To make the tassles, I used cotton embroidery floss and wrapped it around a piece of card stock folded to the width I wanted for the length of the tassle. (your finger will work just as well) If you prefer working with a larger piece, that's fine since you'll be trimming the tassle to the desired length when you're done.
Use a large embroidery needle to slide under the top of the loops of the thread. Hold the top of the loops in place and slide the cardstock out. Holding the body of the thread, twist the needle like a propeller till the needle is held tight (about four full turns will do it) Holding that in place, wrap another piece of thread around the loops directly under the needle and tie it in a triple knot as shown below. Leave the long pieces of the tie thread attached.
Slide the needle out of the top loop and trim the bottom of the loops to the desired length. The thread used to tie off the top can be threaded into a needle to sew onto the pillow.
Sew the tassles onto the corner of the pillow and you're all done!