Knitting this potholder will teach you a basic double knitting technique. This makes a thermal, double-layered fabric, perfect for a potholder. You will also learn how to quilt the fabric layers together.
This pattern produces a thick wool potholder that felts slightly with use and washing, making it even more insulated against heat.
Materials: one skein bulky or super-bulky wool (some yarns of this weight are called "chunky"), size 8 straight knitting needles or circular.
Recommended yarn:

REYNOLDS Bulky Lopi; 100% Icelandic Wool; Super Bulky $6.95The basic pattern stitch is worked on an even number of stitches, and all rows are worked the same: *Knit 1; yarn in front (yif), slip 1 stitch as if to purl, repeat from * to end of row. Turn.
In the next row and all following rows, you will knit the stitches that you slipped in the previous row.
Quilting rows: Row 1: Knit two stitches together across the row - right side of fabric. Row 2: Increase 1 stitch in each stitch across the row by knitting into both the front and the back of each stitch.
Instructions:
Cast on 60 stitches. Knit in the pattern stitch until the length of your knitting measures 1/2 of the width of your piece. This will vary depending on the thickness of your yarn and the tightness of your knitting. My potholder measured about 12 inches wide, so I knit for approximately 6 inches.
Work the two quilting rows. Knit in pattern stitch until your potholder is square. Cast off all stitches.
I found that the quilting row created a weakness, or thin strip across the center of the potholder. It makes for an easy fold though, so to compensate I made the potholder extra large. I fold it in half when I use it. You can eliminate the quilting row and make the potholder smaller by casting on 40 stitches and knitting it square.
If you want to knit a loop for hanging your potholder, cast off all but the last three stitches. Put these stitches on a double pointed needle and knit an I-cord.
I-cord: Knit 3 stitches, then without turning, push them to the other end of your needle and continue to knit these 3 stitches until your cord (which will be a tube) is the length you wish. Cast off and sew the end back to the beginning, forming a loop.
Variations: Maybe you don't need a potholder and would rather have a small pouch. No problem. Instead of casting off as normal, cast of every alternate stitch on a separate needle or run a piece of yarn through every alternate stitch for a drawstring.
Now with any sort of ingenuity at all, I'm sure you can imagine some of the possibilities here...
1. Cast on more stitches at the beginning (making sure to cast on an even number) and knit a bigger bag/placemat/?.
2. Cast off alternate stitches and knit a much longer I-cord and attach it to the opposite side of your bag for a shoulder strap.
3. Combine a drawstring and a shoulder strap to create a shoulder bag with a more secure closure.
4. Experiment with different weight yarn and various needle sizes. A cotton yarn (which wouldn't stretch as much as wool)and larger-sized needles might create a fishnet-textured bag, ideal as a beach or pool bag for a wet towel and swimsuit.
5. For the expert: add pockets to a sweater by cutting a thread in your sweater where you want the center of your pocket to be, unravel it as wide as you want your pocket, then pick up all the stitches and knit as above. Be sure to secure your stitches at each side of the pocket.
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Recommended purse/knitting bag:

Whiskey Paddington Tote Handbag Small - $ 35.00
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Style worn by Paris Hilton, Nicole Richie, Jessica Alba, Lindsay Lohan, Mischa Barton, and Kate Bosworth.
The double-compartment interior is lined in silky taupe fabric and has a zip divider pocket, zip wall pocket, and two open accessory pockets. Plenty of room for a circular needle, ball of yarn, wallet, cellphone, makeup etc. The top zip has a leatherette pull-tab, and the front flap closure features the distinctive Paddington lock and key. This lovely bag is elegantly crafted of butter-soft high-quality leatherette, and is available in three beautiful colors-- black, whiskey brown, and snowy white. Dimensions: 12" L x 6" W x 6" H -- 6 inch handle drop.
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