I really wish I had more photos of this. I made a sign for a bar that we ran at Vale, we set up a bar right in the middle of the quarry (hence the crates for moving beer). All good pubs need a sign and ours was no exception. The lettering and outline were coloured using paints, the areas were masked before cutting to allow a neat paint job.
The picture itself was transferred to the wood from a colour printout. There are lots of online tutorial that suggest all sorts of glue to use. The gist is that you print out onto a sheet, cover the whole thing in glue and stick it ink side down onto the wood. Once it has dried, you then wet the paper and slowly rub it off of the ink. The trouble is there is a very fine balance between not rubbing enough paper off and rubbing the ink off. In this case the blemishes work well with the style.