This craft assumes you already know how to make a t-shirt with a mock turtleneck (or band) collar.
In addition to all the typical stuff you need to make a shirt, you'll need:
Lace -- for the ruffles.
Cut out all the various trappings of a shirt. (However, cut the sleeves a bit short ... perhaps to 3/4 length.)
In addition, cut four small rectangles and two long rectangles, measuring about an inch long and at least 1.5 times (and at most 2 times) as wide as the edge of the sleeve.
On the long edge of the long rectangles, sew the lace on so that it's pointing inward toward said rectangle.
Take two of your small rectangles and pin them together. Sew up two long sides and one short side -- in effect, you're sewing a U.
Turn the small rectangles. Squirt 'em and iron 'em.
Also, take the long rectangles and press them so that the lace now sticks down.
Sew a bit of lace to the bottom edge of your smaller rectangles.
Go about assembling the shirt in the normal way. However, when you go to put the band collar on, pin the smaller rectangles between the shirt and the collar, in the middle of the shirt. Arrange them so that the bottom one sticks out beyond the top one. I don't know if my finger helps you visualize this any better, but if it does, here it is:
It should be layered as such: shirt, rectangle, rectangle, collar. Stitch it all in.
See, when you press the collar up, you'll get:
Take your long rectangle and gather it so that it's the same length as the edge of your sleeve.
Pin right sides together, and sew it in. It should look like this. Do this to both of the sleeves, then continue putting the sleeves in like normal.
When you're finished, you'll have a great looking ruffled shirt!