I first came across the idea while oohing and ahhing over this nursery on Spearmint Baby (from Drywall and Diapers).
Putting your baby's favorite article of newborn clothing in a shadow box to proudly display on a wall in the nursery is one of those sweet ideas I wish I had thought of myself about a year ago, when my son's nursery was more baby and less little boy.
The steps are simple: Pick out your baby's favorite onesie, top, or hand-knit hat (or anything else small enough to fit into a shadow box). Either something that reminds you of your baby's newborn-ness or something you brought the baby home in. I personally loved the little kimono T-shirts the hospital nurses put on my son in the hospital, and that's what I'd put in my own shadow box frame.
Then, once you have the shadow box picked out (I like this pricey frame from Pottery Barn but also this inexpensive frame from Target) and choose the clothes, just secure it in the box with double-sided tape, hot glue, or cute pins -- and there you go!
Have you displayed your baby's newborn clothes in some way?