I've done a lot of stencil printing. Here's what I've learned:
The best material to cut a stencil from is acetate. It is the thin transparent plastic used as overhead projector sheets. It is easily available at office supply stores. It creates a rigid but flexable stencil that can stand up to some real abuse. You can use a heat-based printer to print any image you want onto them. Use your laser printer or take it to a print shop.
If you are new to stencils, be mindful of creating "islands" in your design- spaces that get cut out and are left floating. These are easy to lose and extremely difficult to place correctly within the design. Care should be taken to connect islands to the remainder of the stencil by creating bridges. These can be small connecting strips that serve only to support an island. They can also be a slightly altered shadow or other feature of the image that works harmoniously within the final design. Using photoshop or similar program ahead of time lets you edit your design and correct issues before you dedicate time to cutting.
Tearing is an issue with this material as it lessens the strength if the stencil and promotes bleeding. However, it can be easily avoided by following two guidlines: 1) Never twist the blade at a corner. Pick the blade up and start a new cut at the second angle. 2) Keep the blade sharp. Use x-acto blades. Swap them out as soon as you feel your cuts dragging. Swap them out if that tiny tip at the end breaks. You dont want your clean design suffering. You can save the blade for less detailed work like cleaning mold lines or whatever.
It is important to be able to re-align your stencil for a second coat. To do this I make alignment-keys. Pick two opposite corners of negative space. After you finish your stencil, cut a simple design in each one (i usually just use plus signs). When you print your stencil, put a peice of masking tape on the fabric, under the space where each key would lie. Paint the keys along with the rest of the stencil. Leave the tape in place after the stencil is removed and while the paint drys. If you need a second coat, line the keys back up overtop of the tape. This will insure your design is spot-on.
Affixing the stencil to the fabric is straight forward. You can simply tape down the edges and print, but this lessens detail, promotes smudging, and makes accurate second coats very difficult. Long setting spray adhesive is usually the way to go. It'll give you enough tack to keep all the stencil details on the fabric without leaving glue after you're done. Read EVERYTHING on the can. Spray from recomended distance and press it down firmly but carefully. Spend a little time getting the sharp corners or small details laid nice and flat. It'll peel right up when you're done. Time limit for the glue will be on the can. Complete printing within the tack time, before the glue sets.
Fabric paint comes in so few colors and is usually over priced, under quality, and only comes in tiny bottles. Fabric ink is better suited for screenprinting and tends to bleed on stencils. I highly suggest you get a bottle of Acrylic Fabric Medium (available in gloss or matte at arts+craft stores). It mixes 1:1 with acrylic paint to give you heat-setting fabric paint in any color you can buy or mix.
Apply the paint with a small foam roller. It'll soak up a good amout of paint, but it will give you a very even coat. Roll in from the negative space in towards the cut out design. Take special care around small/sharp details. You dont want a corner getting caught and smudging you design or breaking the stencil.
The first coat may look a bit thin and patterned. Let it dry and apply a second or third coat, drying between each. Those keys I mentioned will come in handy. On very dark colored fabrics, consider doing a coat of white first as a primer to make your design pop a bit more.
The disadvantage of spray adhesive is that it tends to get dust and particles stuck to the stencil. When you prepare to print additional coats take some time to look for bits that might affect the printed design. Tweeze or razor them off. To reduce dust exposure you can store the stencil carefully. Peeling the stencil up from fabric usually keeps the glue from ever fully setting in the future. So I just stick it to a peice of scrap material and peel it up a few times, then sandwich in in a manilla folder or something similar. Baggy it up and squeeze out the air if you want to be extra careful.
Sorry for the wall of text. I hope something in there helps.