There's lots of ways to do it, but I decided to go with Emily B. Miller's method in a Sock Surgeon's Afterthought Heel. This is a pretty cool method because you don't have to do any pre-planning about where to place the heel and you actually go in and snip the yarn later to add the heel.
Snipping into your sock is a little unnerving... but in the end, it was pretty awesome!!
Here are some pics:
Right after I cut into the sock and picked up the first few stitches... the super scary part!
After I picked up all the stitches -- lots of waste yarn to weave in later!
Knitting the heel! (hint - it's a toe!!)
I recommend trying this method! It's awesome!