Gently heat 2 cups of any kind of milk on the stove to just below the boiling point but do not boil. Generally a skin will form on the surface. You can remove this.
Remove from the stove and set aside until the milk is lukewarm or on a thermometer measures at 110 degrees F. Mix in 2 tablespoons fresh plain yogurt (this is your starter culture). The yogurt must not contain sugar or any other ingredients and a live bacterial culture must be present. Most plain yogurts purchased from a health food store will have a live culture but if in doubt check the side of the package.
Place on top of a towel and let this mixture sit (with the lid on) in an undisturbed place for several hours until it thickens up (3-12 hours).
Temperature is important. The mix must stay just above 80 degrees F. If your kitchen is cool and a consistent temperature cannot be met, place a lid on the pot and wrap the entire thing in towels. Alternatively you can place the pot into an oven that is set to the lowest temperature possible and keep it there during fermentation (watching temperature doesn't exceed 110 F is important here).
Once the yogurt has fermented you can pour into new containers (sterilize first) and place in refrigerator for a maximum of 2 weeks.
Try straining through cheesecloth to make yogurt cheese (great on sandwiches).