From the woodblock printing Video on the Victoria and Albert website
Here the block is being carved
A stencil is used to apply colour to the image. Cool man.
I find these playing cards from the Victoria and Albert museum very inspirational. They date from 1520 and would have been created using a woodblock and then coloured with a stencil. I think the drawing of the 'knaves' are adorable and I love how the colour is slightly off register. The V + A website has a very instructive video which demonstrates the technique of woodblock printing.