I started by picking a font and making a template with Microsoft Publisher.  Then I tacked it to the piece of 2X4 that I was using for the sign.  I used a Xacto knife to score the lettering into the wood by pressing it along the outlines of the letters, making sure it cut all the way through to the wood.

Then I used a Dremel rotary tool, and carved out the letting with a couple of routing bits.

After I got the letters all carved, I sanded the wood a bit to remove the rough edges, then painted inside the letters with some acrylic paint.  

I nailed the top part of the sign to another section of 2X4 and left it outside for a few months so it could get that old weathered look.

For the 2006 party, I drilled a hole through the bottom of the post and tied the sign to a section of broken cinderblock and sunk it to the bottom of the pool along with a treasure chest I built and a Blucky.  It was just kind of a "coming attraction" kind of thing for 2007's planned party theme.