Write a story suitable for children. Keep it rather simple and down to earth so the events in the story could happen to the typical child. Try keeping the list of characters to only four or five. Wherever you would type a character's name, substitute a symbol like "___" or "***". Make each character a different symbol. This allows you to later personalize the story for different children using the child's name for the main character and the child's friends' or relatives' names for others.
Draw the illustrations for your story. Look back at your story and draw images that represent the story you have told. You are going to have to do two sets of illustrations, one for books you will personalize for boys and one for girls. You do not want to include a face for your main character. Whenever you draw your main character (who is supposed to be the child the book will be for) always draw from the neck down, so the child can still believe it is him or her. You will need from 10 to 20 illustrations total covering the events in the book.
Scan the images into the computer. Crop and resize as necessary. Then, paste them into Microsoft Word and set up the pages of your book as you see fit. You can place a few sentences and an illustration on each page or a page of text followed by a page of illustration. Either way, as you set up your pages in Word, make sure you have at least 20 pages (it is hard to print books smaller than that).
Select a method for printing your book. Unless you have the capabilities to print it on your own you will need to use a site such as www.lulu.com, www.ecprinting.com or another print-on-demand service that meets your budget. You will likely only be printing one book at a time.
Open your manuscript in Word and click "Edit" then "Replace" on the drop-down menu. Type in the symbol for the main character in one box and the name of the child for whom you are personalizing the book in the other. Click "Okay" and the child's name will instantly replace all the symbols. Do the same for the other characters.
Save the file under the child's name and then send it to the printer. Set up the shipping to send it to the lucky child's address.