Here's my process for molding normal human sized knife sheaths. Swords, axes and holsters have additional steps. Again, this is just how I do it. There's more than one way to skin a cat.
Prepping and molding:
1) Cut an appropriate sized hunk of Kydex off of your sheet. I get all my Kydex pre-cut in 1'x2' sheets. I lay the knife on it and mark off with a blue sharpie how much I need. Line up the T-square with the tic mark, and then score it with a box cutter. Then bend and snap. It'll break at the score mark.
2) Wipe your blade with acetone, then tape it. For me two layers of thick blue masking tape on each side does the trick. I trim off the excess with a razor blade, leaving about an 1/8" extending past all edges of the blade. While you've got your acetone out, wipe down both sides for the Kydex as well.
3) Pre-heat your oven. I use a toaster oven. As has been mentioned, Kydex off-gasses, so it is advisable not to do this in your wife's oven. She will be less than happy.
4) I crank my oven up to broil. You can use a lower setting, but I monitor my Kydex constantly when it's in the oven, and I usually have a bunch of sheaths that I'm banging out so speed is a factor. DO NOT walk away from the oven when the Kydex is in there, regardless of how low you think your heat setting is. Trust me on this.
5) When the Kydex is in the oven, I will check to see if it is ready for molding by grabbing a corner with a pair of hemostats and giving it a shake. You'll get a feel for how rubbery you like it for a particular project as you work with it more. If you get it too hot, it'll get shiny and the edges will start to curl. I always do mine cell side up so I can see if this is occurring.
6) Before you stick your Kydex in the oven, you want to make sure you've got your press open, clamp, and blade all staged. Don't forget to clean your press. Yank the Kydex from the oven, slap it cell side down into the press, lay your blade on the Kydex, position it appropriately for the style of sheath you're making, fold the Kydex over it, close the press, and clamp shut. Some guys clamp theirs in a vice, I prefer a big pair of C-clamp vice grips. More on the press later.
7) Leave it clamped up until the the Kydex cools down. How long that is depends on how hot you got it and the thickness of the Kydex. I usually go for about 18 minutes. Peel your now molded Kydex off of the press, carefully (it may not be fully rigid yet). It'll probably still be warm. Set it aside for another few minutes to air cool. Then split and peel the sheath apart. When I am molding, I will leave a tab of Kydex sticking out to facilitate this. Carefully withdraw the knife and peel the tape off.
That's it for the primary molding. After that, it's locating and drilling holes, setting rivets, cutting off excess Kydex, grinding and polishing the edges, cleaning, and final fitment tweaks with the heat gun. I'd be happy to explain my processes for that stuff as well, if anybody is interested.
Some safety notes:
1) Never force a knife into a Kydex sheath. If it's hanging up, pull it back out and try again.
2) If the knife won't come out of the sheath, don't white knuckle it. Go get your heat gun to loosen things up. I can show you pics of why you should not do this.
3) Do not wrap your fist around a knife sheath like you're holding a baseball bat. Blades will cut their way out. You will mess yourself up bad. Grab the spine of the sheath instead.
4) Observe how the sheath is intended to function before sheathing/unsheathing the knife.
The safety stuff may seem like common sense, but it is still a vitally important safety consideration. All it takes is one momentary lapse and you're on your way to the ER.