This next step involves an amount of glue. Don't be too enthusiastic, but do be thorough. I used wax paper in many steps to keep the glue from migrating through the fabric and paper surfaces.
Place wax paper on your work surface. Grab the longer (12" ) paper that you folded last step and place it on your work surface, both folds as 'valley' folds. Set aside the smaller (8 1/2") paper for now. Make sure that the smallest (fold 2) fold is toward you.
Run a line of glue along each side edge from the first fold to the edge closest to you (click on any of the images to enlarge them).
Place the folded muslin on the paper, on top of the glue, between the first and second fold as shown above. Make sure that the folds look EXACTLY as shown in picture above. Check that the fold of the muslin is parallel to the edge of the paper.
Fold the forward edge of the paper up and over, sandwiching the muslin. This creates the outer pocket edge (it won't make sense yet, just trust me). Smooth it to make sure that glue is making good contact along the side edges.
Cut a piece of wax paper 5 1/2" X at least 5". Place it on top of the muslin as shown in the picture above.
Lay the 'peak' fold of the muslin on the wax paper. (If it doesn't make sense, just enlarge all the photos and follow them step by step. A picture really is worth a thousand words).
Fold the top edge down toward you.
Run a line of glue along each side edge. Fold the remaining muslin over onto the glue.
Above is what your pocket should look like, only in better focus. Keep the wax paper in place until all the glue is completely dry.
Grab the other piece of paper that you set aside in step one. Place it on your wax paper work surface so that the fold is a 'valley' fold. Apply glue to one whole side, as in picture above.
Place your completed pocket on the glued side, muslin side down against the glue. Put another piece of wax paper over top of the whole thing and put a stack of quilting magazines on it until the glue is dry and everything is nice and flat. Then you can carefully remove all the wax paper.