First, you find a web site like this one to start the process by seeing some possible words. Find one that is relatively familiar, such as WHEEL PANTS. Then, since the object is to change just one letter to make a new word, type out the word and look at the P in PANTS. Then start working through the alphabet in your mind until a letter to replace the P makes a new word. A does not work, it makes AANTS, so move on to B, and C, and D until a word appears in your brain. I get to R to make WHEEL RANTS and then make up a funny description of what the new word(s) means, such as "the argument a pilot makes when shouting at his/her mechanic that they have not repaired a wheel properly."
See, it's really quite simple.
So jump on board the #AVWORDS train and let's all become aviation wordologists!
UPDATE @2100Z ON 08.08.12: Someone wrote and asked if I do any "day job" work while posting these #AVWORDS all day. Sure. All I do is spend some late night time writing #AVWORDS in a word.doc, and then just copy/paste them into Twitter throughout the day. So while it looks like I am screwing off at work, I am actually not [much]. And besides, I own the business and am my own boss, so I can do it if I want as long as my ad agency clients are happy, and trust me, they are.
I was also asked where I come up with the words. It is simple enough...throughout each of our days, we get all sorts of communications from AOPA, NBAA, EAA, and the IRS (O.K., maybe not that last one) containing plenty of possibilities for words. Also, you visit many aviation websites all day every day..these sites are loaded with words that can be sliced and diced into new #AVWORDS.