I read about being able to create fabric wall decals a while ago on The Mother Huddle here, and I successfully used the method to attach some fabric decals in the nursery for my youngest daughter. The decals have stayed up for over a year and the ones that I removed left no marks on my walls. Basically you add Pellon (the stuff you use for applique) to the back of the fabric, remove the paper backing, and then iron it onto the wall. Easy.
The method worked really well for fabric, and since it is so removable, it is great for apartments or rental properties. However I wanted to use felt for my wall decals instead of regular cotton fabric. I love felt because it is so easy to work with but it also has several disadvantages. At high temperatures it tends to melt, and I have heard complaints that it is not colorfast. I was a little worried that I'd have a big mess on my walls, but it turned out that as long as I was careful not to let my hot iron rest directly on the felt, it seemed to work great. I left one decal up for a week and then removed it. My wall looked totally unblemished! I'd recommend testing on a corner of your wall though just in case.
I should note that once you've removed the decal it can't be put back on the walls without adding more adhesive.
Here's how I made my felt wall decal:
I used Heavy-Duty Wonder-Under Pellon because my decal has multiple layers of felt and I was worried that thinner Pellon wouldn't have been sturdy enough.
I cut out pellon in the same size as my completled felt wall decal.
And here's my completed house!