Okay, you want to cut out a piece of your material that's about twice the area of your metal button piece. I freehanded it but most smaller button packages will have a diagram you can use.
The next step is to push the material down into the white tool (you will need a button kit to make your button) and the metal button piece should follow. You then tuck the excess material that hangs out into the center of the button. Cut off any excess.
Here's what the finished product looks like. My burlap covered button.
Here's a great video tutorial from www.coverbuttons.com.