Almost any dremel or router bit will cut through wood. A table router can be set to cut to a constant depth for ease of use, and is recommended for signs and other simple wood engravings. Always wear eye protection when using a rotary tool. There are many different bits, or burs, which you can attach to the end of your power tool to achieve different types of cuts. A few of the most common include bull nose bits for hollow surfaces; cylinder bits for flat surfaces; and the teardrop-shaped flame bits to give you fine control over the angle. When engraving wood, the level of detail is only limited by the width of your carving tool, and the precision of your hands. If you aren't comfortable drawing freehand onto the wood, print a pattern on a thin polyester film such as Mylar, and tape it over the wood. Turn on the power tool and gently lower it into the wood. Move it slowly and steadily across the entire design. It takes surprisingly little depth to achieve a three-dimensional appearance, so try starting with a shallow groove, then going over it a second time if you're unsatisfied. . If you'd like to make the engraving stand out more, try painting the cut area. Paint the original, flat surface a different color to make it stand out. Paint, or a transparent wood finish, will also help protect your wood from wear and tear.

Summary:
Select a rotary tool. Choose a carving bit. Draw or transfer a pattern onto the wood. Trace over the pattern with the tool. Paint the wood (optional)