Photographing them outside under natural light is the best but I wanted a little more control.  I researched online and decided to build a light box.  It is really pretty simple and it works good (it would work even better if I would take the time to learn all the features on my fancy digital camera!)  Using a light box eliminates the need for flash which always seems to make needle felted things look very harsh.  By diffusing the lights, harsh shadows are eliminated.  With seamless, interchangeable backdrops, there are many possibilities for really making your figure stand out and be noticed.  

All I did was locate a large, sturdy box, I cut out 4 out of the 6 sides, leaving just enough cardboard  for a sturdy frame.  I then hot glued white fabric (I don't know what type) to the edges.  The fabric diffuses the light so it can't be too thick or too thin.  The back and the bottom of the box are the two sides left intact.  On the back, I cut a slit horizontally near the top.  I slide my background fabric through this slit to hold it in place.  I purchased three of those metal clip-on shop lights and found just the right spot in my studio to put the box so I can position the lights - one on each side and one pointing down from the top.  This creates, nice even lighting without harsh shadows. 

I position my dolls inside the light box and then set my camera on my tripod.  I make sure that when my subject is in my viewfinder I can't see any of the white fabric, just the background.  Then I snap away.   Bringing the photos into a digital photo studio, you can crop out any white fabric that snuck in and further play with the lighting and white balance.   By moving the lights around, the shadows can be controlled.  Every time I put a piece into the light box, I mess with the lights and take many shots, experimenting with the controls on my camera.  I have also been experimenting the different types of light bulbs.  I know that with time, I will finally put it all together so my photos have a professional edge.