Design Options
Hildi and her two partners attached the fabric to the walls and ceiling with staples, and then covered the staples with some trim. This is the easiest approach for those whose walls are covered with drywall. If you have plastered walls, however, stapling would be a challenge. In this case, I would suggest attaching some lath strips to the wall, and then stapling the fabric to the wood.
Some decorators like to treat fabric like wallpaper, and attach it to the walls with liquid starch. Only lightweight fabric, such as muslin or tulle, should be used for this approach. Wash the walls thoroughly, then spread starch on a wall with a sponge or paint roller. Press the fabric onto the wall, and then rub the surface with a sponge, working the starch into the surface as you smooth it. Once the starch dries, go back and trim off any excess fabric. You can remove the fabric by dampening it enough to loosen the starch and peeling it off. Wash the starch off the walls with soap and water.
If covering entire walls with fabric is too much for you, consider using fabric as wainscoting, covering the bottom part of a wall. For this approach, I would attach lath strips along the top of the baseboard and along the wall about 3 feet above the floor. Staple the fabric to the lath. Trim the top with cap molding, and cover the staples at the bottom with a matching piece of flat molding. Paint or stain the trim pieces before attaching them. Another option is to use fabric as a border around windows and doors or along the top of the walls.
You could cover only one wall, or only the ceiling, with fabric. You could also use different fabric for each surface. Create a padded effect by first stapling batting to the wall, and then covering it with fabric. Just keep in mind that fabric can get quite expensive.