My husband has been folding shirts this way ever since he saw it on Martha Stewart (am I blessed to have such a man or WHAT!), but on another site there is a flash video of how to do it.
I must admit that I have NOT tried to teach my daughters this way to fold a shirt. Right now, they fold it the best they can. The 6yr folds it nice and neatly. The 4yr folds it fairly neat. And 2 1/2yr, bless her little heart, tries so hard but just ends up with a pile. Thankfully the shirts don't wrinkle hardly at all so I don't have to go back through and redo everything for her (which takes up time and also, I feel, discourages her).
I hope you enjoy the link!