Ladder stitch is worked back and forth between two parallel lines and forms two chains with longer threads in between—just like a ladder! Here is the step-by-step diagram from my embroidery book in case the photos aren't clear enough. And when I refer to a letter in the directions it's this diagram that they correspond to.
First draw two parallel lines on your fabric. Bring your needle up on the left side (A). Insert the needle directly across on the right side (B), then up again to the left and slightly above the connecting line of thread (C).
Insert the needle again on the right side directly below the end of the first stitch (D). See how the thread crosses over the end of the first line?
Now come up on the left side slightly below the beginning of the first stitch (E). You'll want to leave just a bit of space in between and you'll see why in the next step.
Keeping your thread below the needle come up over and then under the first thread (F), forming a small cross like you see on the other side.
Now, on the right side, pass your needle from right to left under the first cross (G). Take care to not catch any threads from the last stitch when you do this.
Continue in this way, working back and forth, with the needle passing under the cross on each side to form the braided edges.
Finish on the right side by taking your thread to the back, forming the last cross on that side.
My biggest problem with this stitch was keeping the sides even and I didn't do a very good job of it. I found it really hard to keep the right tension—if you pull too tight the sides bow in; too loose and the long thread in between looks too loose. I'll need to practice this some more (see, even I need to practice). A slightly stiffer fabric might be a good idea, too.