What's My Money Error Worth?

A sheet of paper is fed into the press where it passes between the master plate cylinder and a hard, smooth impression cylinder under pressures reaching 15,000 psi (1,034 bar). The impression cylinder forces the paper into the fine, engraved lines of the printing plate to pick up the ink, leaving a raised image about 0.0008 in (0.02 mm) above the paper. This process is repeated at a rate of about 10,000 sheets per hour.

The printed sheets are then stacked on top of each other. The backs are printed with green ink first and are allowed to dry for 24-48 hours before the fronts are printed with black ink.

After the printing process, the stacks are cut into two stacks of 10,000 sheets and are visually examined for defects. Each sheet is fed into a letterpress which prints the colored Treasury seal and serial numbers on the face of the bills. Sixteen serial numbers are printed at the same time. The press then automatically advances the numbers before the next sheet of sixteen is printed. The numbers on any sheet are separated by 20,000 between adjacent bills. Thus, the bill in the upper left-hand corner of the first sheet would be serial number 0000001 and the one below it on the same sheet would be 0020001, and so on. On the second sheet, all the numbers would advance by one giving 0000002 in the upper left, 0020002 below it, etc. In this manner, when the sheets are cut into separate stacks, the bills within each stack will have sequential serial numbers.

The finished sheets are inspected with machine sensors, and any printing errors, folded paper, inclusion of foreign objects, or other defects are identified. Any bills which are found to be defective are marked for later removal. Such bills are replaced with star notes which are numbered in a different sequence and have a star printed after the serial number.

Collecting currency errors is one of the most interesting area of paper money collecting, a hobby that can be pursued as easily as looking in your wallet or receiving change from a transaction. Even a severe paper money error may sometimes circulate for years before a knowledgeable collector finds it.

Sources:
http://money.howstuffworks.com/question703.htm
http://www.coinsite.com/html/uscurrencyerrors.asp