I saw this tutorial from Kirsten at Studs and Pearls a couple months ago and knew that I was going to attempt it as soon as it got cool enough here to actually warrant wearing hats. It turned out to be way easier than I was expecting. There's also this tutorial from Consciously Modest on YouTube if you want a closer look at what's happening. But I promise it's not difficult. Check out how I did mine!
Turn the sweater inside out and mark the size of your hat and sew up like the dotted line below.
Use a thicker thread (I used embroidery thread) to do the running stitch, then pull the ends so it scrunches together.
Flip right-side-out and wear it!