get wool roving, thin it out, wrap it around soap bars (some say nicer farmer's market style, others say whatever's lurking in the back of your bathroom's linen closet is fine).
stretch it, thin it, add more, stretch it, thin it, change up the color of the roving if you like, stretch it, thin it... just make sure the bar is covered.
then cold water wet it, throw it in an old nylon (some used cheesecloth in a pinch) and massage to felt it. rinse it. repeat massaging/felting if needed. really work out all the tension the soap might be feeling. deep swedish hot rock tissue massage.
once you're happy with the felting process, give it a final rinse, and let it air dry. some say outside in the sun, others just on the kitchen counter using a cooling rack.
the roving/felt acts like a washcloth, and it has some anti-bacterial properties so isn't supposed to smell funky.
and my favorite at http://www.thistlewoodfarms.com/how-to-felted-soap
because of the muppet/man thing