Sorry for the retarded Paint-drawing. I think I need Photoshop or something.
Take jersey (light cotton works as well, though, but isn’t as comfy), fold, cut (approximately like this, preferably with the help of your favorite T-shirt), sew, done. Make it long and it’s a dress; make it shorter, it’s a tunic; make it short, it’s a T-shirt. (make it too short, it’ll be ugly :D) Tight, loose, whichever way. Works also very well with old big T-shirts that you want to customize to fit!
Haven’t tried one with long sleeves yet, but at some point I will.