Begin by casting on 3sts and working the I-cord for the given length.
At this point, you're going to increase one stitch for every row of I-cord that you work. That increased stitch stays on the right needle (or you could slip it to a holder although this may be a little awkward). The I-cord is always 3sts.
When you the given number of sts (58sts for size small) on the right needle or holder, continue with plain I-cord with no increases. At the end of the I-cord, cut the yarn leaving a 4-6 inch tail to weave in.
The body of the bonnet is worked in the pattern stitch with the sts on hold.