Basic Shading using the Blur Tool
This tutorial was done with Paint Shop Pro 8, but I'm sure it'll work with other programs that support layers and blur. This is just one of the ways I've used to shade folds in dresses, is pretty simple, and the results look good.
1. Start by opening your base(my base is from ILCK) and pallete(if you want), and create a new layer, name it dress outline or something similar.
This is the pallete I'll be using. 
2. Make the dress outline using the first(darkest) color.
3. Clean up the outline, making sure is 1 pixel thick, and give some shape to the bottom part.
4. Fill the inside of the dress with the third color. Now with the magic wand, click anywhere outside the dress. It should select all the space surrounding the dress. Go to Selections>Load/Save Selections>Save selection to Alpha Channel. Deselect.
5. Create a new layer to add the shadows to the dress. Now pick the second color, and grab the airbrush tool. I usually only change the opacity and size, in this case I use, opacity:100 and size:4. The size will propably vary depending on the size of the doll. With the airbrush draw around the outline, and where the shadows are supposed to be, under her breast, and where the folds and creases would be. It's ok if it goes outside her dress, we'll clean it later.
6. Now go to Adjust>Blur>Gaussian Blur. And set the radius somewhere between 2 and 4. Mine is set to 3. Now go to Selections>Load/Save Selection>Load from Alpha Channel. Load the selection you previously selected and hit delete. It should delete everything outside the dress. Your doll should be looking something like this.
7. We are going to add the highlights now. Create a new layer, pick the fourth color and with the airbrush again draw where the highlights should be.
8. Apply the gaussian blur again. Somewhere between 2 and 4, I used 3 again. Load the saved selection again and hit delete. It should look like this now.
9. Now just add some details, a pattern or decoration and you're done!
Questions? Comments? Email me at susy @ azure-star.org