I knitted a hat in a class July 2011. The hat was too short for me to wear: it went across the tops of my ears. Bleah.
What it needed was edging. I picked up around the edge, one stitch in each stitch, and did a single crochet in each one. Then I did 2 dc in each sc and 2 dc in each dc, for a total of three rows and about 1.25" extra length for the hat.
For the baby hat, maybe pick up and make 1 sc in every other st around the bottom of the hat (hold the hat upside-down while doing this, since crochet builds from the bottom to the top as held in your hand). That's Row 1.
For loops, multiple chain stitches look nice. I don't know what size of yarn you're working with, but try 3 chain sts between each pair of single crochet sts and connect with the single crochet sts with another sc.
Here are the suggested directions in "normal crochet pattern language":
Round 1: Pick up and sc in every other st of knitted cap. Slip st to close first round.
Round 2: (ch 3, sc in sc) OR (ch 5, sc in sc) around cap. After last sc, slip st to first ch of ch 3 to close Round 2 and fasten off.
Of course, if you'd like more loops, more can be made!