Lets first sort of define what an inlay is. An inlay is an addition of wood or other substance into a craft by embedding it into the original surface. Inlays should never be confused with laminations, which are formed by placing one wood directly on top of another. Inlays can range from straight lines to ornate shapes to complex geometric figures.
I will assume that everyone can do a straight line inlay so I won't spend much time on it. And too, I am writing this from a perspective of a first time inlayer. Some of us who have done inlays for some time probably have better techniques, but this is basically how we all started out.
Inlaying a straight line:
Let us say for example we want to inlay two straight lines on top of a box turkey call paddle. It's actually quite easy all you need is a router and a bandsaw. Simply set the router fence back from the bit as far as you need to place the inlay where you want it on the paddle. For a small inlay use a 1/8" straight bit in the router. Set the depth of the route to about 1/8th of an inch and using a block move the paddle in a straight line across the bit, using the fence for guidance. Turn the paddle and route the other side without moving the fence.
You just made two straight lines!
Next get yourself some scrap wood to make your inlays from. Never use veneer for inlays! I know the guy on the DIY TV Network says it's okay but I don't. All wood breathes and shrinks and swells based on humidity and ambient temperature. If you use paper thin veneer for the inlay it will shrink and swell quicker than the rest of the paddle and cause cracks.
Cut two straight pieces to use for your inlays the exact width of the slot you routed. The height of the piece should be enough to cause the inlay to rise above the piece you are placing it into. The inlay should snap into the groove you made but not fall into it. You should have to exert some effort with your thumb to get it in the groove. If it fits in too easily you cut it too small and you should cut another piece.
Apply glue both the the inlay piece and the slot itself and use your thumb to mash it in. Apply a piece of wax paper over it and clamp it into place. I like to use those spring loaded clamps myself, as C-Clamps and squeeze too hard. Make sure glue squeezes out evenly along the length of your inlay. Always use Pro-Bond or another type of wood glue for inlays. Again, I know the guy on TV sometimes uses CA glue for this but I don't. Repeat this procedure for the other sides inlay.
Now here is the secret to a good straight line inlay. Sand it down smooth about two hours after clamping, never let the glue fully harden before sanding. Sand across the inlay using back and forth strokes and not circles. Do not sand in line with the inlay to get it down smooth with the paddle. Then let the glue dry for another couple of hours and sand in line with the inlay until you get the desired surface. You should then have a pddle with two straight inlays, and there should be no space between the inlays and paddle.
But Chip routers are expensive and I don't have a router table.
Okay, here is your helpful hint of the day. Routers don't have to be expensive at all! If all you are going to do are basic inlays you don't need an expensive router or table. Go down to your local Harbor Freight or better yet go to Homier.Com and buy yourself a trim router. It's a small router but more than enough to do what you want. It's $29.00 at harbor Freight and $19.00 at Homier.Com. Quit laughing, I know their cheap but they're actually quite good routers. In fact I use two of them on my duplicating machine.
Then stop by Home Depot and get yourself a piece of 5/8" by 2 foot by 2 foot MDF Board for about $3.00. Mount the router underneath using the four mounting holes in the square router plate. place the router underneath with a hole cut for the bit to come up through. Use a 2 foot scrap two by four for your fence fastened to a bar clamp (available at Harbor Freight for about $4.00). You now have a router table suitable for basic routing. Once you start doing fancy stuff you might want to buy a good table but for now this is enough. Mount it on your workbench or build legs under it, that's your call.
Never try to use a Dremel tool for inlays even with the router attachment. They're flimsy, under-powered and the bits for them just bite. And the fact is you can buy the router above cheaper anyway.