Choose 2-3 (or more if you're feeling brave!) different color polishes that you think will create a nice gradation. Choosing color near each other on a color wheel will ensure this, but be crazy and out there and choose whatever you'd like.
You will need a plastic surface to paint nail polish onto, so be sure to have some wax paper or plastic sheet. I use an old tupperware lid - anything works!
Be sure to dampen your makeup sponge before getting started.
Using the lightest color in your palette, paint your entire nail and wait for them to dry. If you're impatient, use a fast dry top coat, like Seche Vite.
Paint the polish colors you've selected from lightest to darkest onto your piece of plastic. Make sure the edges of each color are touching one another.
Using a toothpick, blend the hard line between each color. The more blending you do, the more gradual gradient you will have.
With a damp makeup sponge, dab directly onto the polish a few times.
Dab the sponge onto your nail, making sure to move slightly up and down on your nail to create the gradient.
Repeat this step as many times as you'd like until you get the look you're going for, but make sure each layer is dry or you'll smudge the entire nail.
Use a Q-Tip dipped in acetone to clean up the skin around your nails.
Add a layer or two of your favorite top coat to smooth out any texture from your sponge, and that's it!