I just finished this cardigan:
(I had to tweak the colors in photoshop so you could see the details.)
This is what it looked like originally:
1. I sewed a line (using a really short stitch length) about 3 inches in from the cuffs, hem and neckline and two lines about 6 inches apart down the middle.
2. I cut up the middle (making a cardigan out of a pull-over), cut off the cuffs, hem and neckline.
3. Using a seam ripper I shredded the egdes into 3/4" to 1" strips stopping at the lines I had sewn in step 1.
4. I put the sweater on inside out and pinned the arms and sides to give it a more fitted shape and then sewed along my pin lines:
(The little white dots are my pin-heads.) I also sewed a tight zig-zag stitch along the arms and sides before cutting off the excess material since it's a more crucial seam than the seams to stop the fraying.
5. I added a little clasp to the front. (I originally wanted it to be worn loose but because the original sweater was so huge on me it falls off my shoulders without it being clasped in the front.)
6. I've been throwing it in with every load of laundry to get the edges more frayed and they are getting there, but it's still sort of in-progress.
I was inspired by the sweater Sarah McLachlan is wearing here: http://www.rollingstone.com/photos/bigphoto.asp?gid=8283&s=1&e=5&seq=4&cf=381
My egdes didn't get quite as frayed as the sweater she's wearing but I don't know if I could get the egdes like that without the sweater really being *made* with that intention in mind.