This is from one of the One Skein Wonders books. Here is my version of it.
Bulky yarn (I love using Lang Tosca - takes 2 balls)
knit one row
knit 2 tog across (40 stitches now)
knit 1 row
knit 2 tog across (20 stitches now)
k1 p1 rib until the scarf is as long as you'd like it to be
increase in each stitch across (40 stitches)
increase in each stitch across (80 stitches)
It's the quick increases which makes the ruffle.