Basically what you do to participate is:
A) Sign up.
B) During the blog week you will post on your blog from a set topic. If you go to Eskimimi's blog you will see a link to examples of last years posts - the one I stumbled upon was "A Tale of Two Yarns". As you can see - the topics allow for some wiggle room in how you would post about this. Two yarns that compliment each other? A Yarn you loved and a yarn you hated? Two yarns you combined for awesome results?
C) There is a really neat tag system that Eskimimi has created that you will insert each day into your blog. The tags for each day have already been posted up on her site and you enter a specific code for each day. This will allow all the participants to google search that code and find all the different posts for that day! How clever is this? (I can't wait to start trolling through all the blogs!)
D) Go read the actual details on Eskimimi Makes Blog since I am paraphrasing all of this and I am in a Zombie sleepless state so I might have mucked things up a bit.
If you have any interest I would recommend popping over and having a look. There are prizes offered up too - which of course is just lovely!