I use a special panorama head on my tripod that has fixed detents that allows me to rotate the camera precise and consistent amounts between each exposure. Each exposure is positioned to maximize overlap with the previous image to ensure the best possible match between each image.

Once the images are captured, downloaded to my computer, converted from RAW format to TIFF, they are imported into The Panorama Factory, a simply awesome piece of software. Panorama Factory "stitches" all of the images together and generates one VERY large file, (for a full 360 degree image the overall length can exceed 150 inches).

Once the panorama has been built I then use Photoshop to clean up exposure, sharpen, and finalize the image.