You need 2 liter bottles, potting soil, seeds, thick string or yarn (either cotton or poly seems to work).
Step 1 : Cut the bottle in half.
Step 2 : Use a Phillips screwdriver and a hammer to punch a hole in the center of the bottle cap.
Step 3 : Cut a length of yarn/string about 1'-1.5' long, double it over and tie a loop on one end.
Step 4 : Thread the yarn/string through the hole in the bottle cap so that the knot is on the inside of the cap.
Step 5 : Add potting soil and seeds...
Step 6 : You need to water the soil from the top the first time in order to make sure that it is uniformly wet and that the string also is wet.
Source : How To: Self-Watering Seed Starter Pots