There are a few threads about yo-yo's. I think this one has the link to show you how to make them by hand: http://hipgirlclips.com/forums/how-m...-yo-maker.html
If you're just doing a few, I would do them by hand. I use the Clover brand yo-yo maker, it's just a template, they sell them at Joann's, Michael's. etc. FYI - I do NOT like the Clover brand Flower yo-yo maker, they turn out horrible. But I do like to make the regular circle ones in various sizes.
They are an 'old craft' - have a few different names, suffolk puffs I think. Came from people not wanting to throw away any fabric scraps so they would make little yo-yos, and then they sew them together into quilts, etc. I have a runner on my table right now that my 85 yr old Grandma made! So I think it's kind of cool that she and I do a similar craft. =)