Use a TOO-BIG-FOR-YOU t-shirt and put it on inside-out. This allows you to mark where your shoulders begin with chalk. Just make a mark.
Make a straight line from the shoulder mark to the armpit on the sleeve. Cut along the line you just made.
Trim off the excess of the part you cut off to make the sleeve smaller and more comfortable your your arm. Pin and stitch to the shirt. Don't freak out because of the gaping hole at the bottom of the armpit and shirt.
Stitch up the hole below the armpit.
You can leave the sleeves alone at this point OR you can add some elastic to ruche them.
Using your zig-zag stitch, sew the strip of elastic on the inside of the sleeve. This should go from the bottom of the sleeve to the shoulder. Don't make it too tight or it will look awful!
Using a longer piece of elastic, measure the length and tightness you want to achieve with your dress. Again, don't make it too tight, it's supposed to be gently ruched. Sew it into the shirt to create the waistline you want--as high or low as you like.
All that's left is to add any detailing you want such as lace or beads. I prefer simplicity and plan to throw on a cute necklace and some flats for summer. What are you going to do?