1. A Dremel or some other small router-like object
2. A base of some sort. Dremel, StewMac, whatever
3. Some end mills. I get some from Grizzly and some from USACarbide.com. 1/32" is a good average small size but it depends on how detailed your design is. Don't try horsing around anything larger to start because you'll only get yourself in trouble faster and not really save much time. I use .025" and .020" end mills alot. Yeah they're all carbide. They don't have to be, but try to find small HSS end mills.
4. Some way to hold down the item you're routing. I usually route fretboard blanks, so I double-sided tape them to a nice aluminum bar I have. A neck is going to need more support. Firm support. You don't want it moving around on you!
5. Filler dust
6. Glue. I use CA glue, mostly because Larry Robinson does and he's my mentor. I also like to use a glue that actually has a solvent. Starbond is the best, but any decent brand will do. It's better if it's fresh and has been kept cool. You can keep unopened bottles in the fridge. Don't do this after it's opened.
I use epoxy only occasionally. I don't like the viscosity and the smell. I'm used to the sharp chemical odor of CA. Epoxy is just rank. ;->
7. Sandpaper. I do 80 grit, 120, 220, 320 and 400. I have some of rolled adhesive stuff from Stew Mac but it's pricey. If your inlays have metal (silver, aluminum, etc) you're probably going to want to have some finer grits. 600, 800, 1200. It depends on what sort of finish you want them to have.
8. A rigid sanding block. Anything flat of the right size can be used.
9. Safety glasses. Carbide is extremely brittle. I've broken 3 end mills this year. You don't want one embedded in your eye. Yeah, regular eye glasses or even a magnifying headset is probably ok. Just don't do it nekkid.
10. A shop vac is helpful to suck up the mess you make
11. Lots of light! You're routing a dark hole in dark wood. Seeing what you're doing is half the battle.
1. A pattern! I make mine on the computer and print them out on regular 20lb copy paper.
2. X-acto knife and #11 X-acto blades (or anything similar) to cut out the patterns. The fine point on the #11 blade helps because you can just stab the pattern to pick it up and place it on the material.
3. CA glue to glue pattern to material.
4. Some material. You can use anything you can cut with your saw, but it should be hard enough to survive being on a fretboard. If you want shell to practice, check ebay. Swanks used to sell scrap. Look here: Raw Material Listing
5. A Jeweler's saw frame. I like 4" German adjustables.
6. Lots of jeweler's piercing saw blades (not scroll saw blades). For brands I like Scies. Anything but Herkules will do because they suck for shell. For gauges, I usually use 3/0, 6/0 and 8/0 depending on how detailed the design is. You will break them. A lot. They're not like band saw blades where breaking one is a big deal. Even a pro will go through many blades in the course of a day. They simply don't last that long. They either go terminally dull or they break.
7. A bench pin or V-block. Stew Mac sells a little one - in fact they even have an inlay starter kit... but I don't like the aquarium pump schnozzle that essentially points right at you. BREATHING SHELL DUST IS BAD. No, it's not "toxic", it doesn't cause cancer, etc. It all-natural. It's just that the dust particles are really sharp. They're like tiny little shuriken. Short term: get this crap in your eyes and you can abrade a cornea... particularly if you wear contact lenses. I know. I've done it.
Long term: They stick in your lungs and this really pisses your lungs off. You start to build up layers of mucous and you end up getting a condition similar to people who breathe asbestos.
I made my own bench pin from some scrap wood. It has the world's most simple shop vac attachment.
8. Tunage! Headphones if you have a nasty 'vac. My Fein is actually pretty quiet so I can crank the tunes up to cover it.