My fabric: for the lace I had a spool of lace fabric about 5 inches wide. The pink fabric was some satin jersey fabric with a shiny side and non-shiny side.

I cut the pink fabric into about a 6" by 6' piece.
I cut the lace into two 6' strips and sewed them together in the center so the pretty edges were on the outside.

Here is a diagram of what the lace looked like after I sewed the 2 pieces together. In total it's about 10" wide so it would stick out past the pink fabric.

This is a diagram explaining how I layed out the two pieces in order to stitch them together with

This is a diagram explaining how to make the scarf ruffle by connecting the 2 pieces with elastic.

Once you are done sewing the scarf is complete! The scarf will curl a bit and so if you want the right side of the fabric to stick out then you will want to twist and meddle with the scarf while you are wearing it. Keep in mind that it's about half as long as it once was since it is ruffled.

Video tutorial: http://www.youtube.com/watch?v=jknGZad7laQ