Step 1: Buy Worms. Google "red worms for sale" or "red wigglers" and purchase 500 to 1,000 of them (you can usually get 500 for about $25).
Step 2: Get a Container. Get several 5-gallon plastic buckets from your local co-op or grocery store. Make sure they have lids.
Step 3: Put Holes in the Buckets. Using an electric drill or a hole-punch, put holes in the buckets so they are well-ventilated.
Step 4: Add Peat Moss or Shredded Newspaper to the Buckets. In order to keep the worms and composting foods nice and dry, use regular peat moss that you can get at any hardware store (or shredded newspapers). Take a handful or two of peat moss and dump it in the bucket (or create a bed of shredded newspaper, and add water to moisten the paper).
A note about bedding: There is controversy about the use of peat moss -- first, because of the damage to fragile peat bog ecosystems (see, for example, Does Peat Moss Have a Place In the Ecological Garden?), but also because of the high acidity of the peat moss (see How to Compost). Shredded -- and wetted -- newspapers can be used instead of peat moss.
Step 5: Feed the Worms. In a small container in the kitchen, keep your food scraps (fruits and vegetables, not dairy or meat), and every week or two put the food scraps into your bucket, on top of a few handfuls of peat moss. Add a handful or two of peat moss on top of the food scraps. Placing the food at the bottom of the bucket draws the worms away from the surface.
Step 6: Add the Worms. Get your worms and dump them right on top of the food scraps.
Step 7: Harvest your Beautiful Dirt. After several weeks, you should see beautiful dirt in the bucket. Keep this going for a few months. Next thing you know, you'll be ready to skim off the top layer of the dirt and throw it in your garden -- or put it in a container for later use.
What food scraps can I use?
YES -- Fruits, veggies, tea bags, coffee grounds, egg shells.
NO -- Meat, vinegar, dairy products, salad dressing, cooking oils, butter, bread, salt.
Note: Red worms won't survive cold weather! Compost in your basement or somewhere else where it stays warm -- NOT OUTDOORS!