Quote Originally Posted by The Supreme Canuck View Post
Two pieces of steel - one with high carbon content and one with low - are placed one on top of the other. The blacksmith then folds the two pieces of steel over each other again and again.

Or so is my understanding. I absolutely expect to be corrected.
You are pretty close

Though I really hate Wikipedia, this will give you a general indication of how its done:
http://en.wikipedia.org/wiki/Damascus_steel