This is modification is so simple to accomplish that I won't even bother to draw a diagram here.  Just about any switch will work since this all that is required is a SPST switch (see the components page if you don't know this terminology).  As such, any switch of any size or complexity can be used.  This is an ideal application for a push-pull pot if you want to hide it or you can use a toggle like that found on Gretsch guitars like the one pictured above.  However, rather than sticking with conventional guitar components, you can find interesting looking toggle switches at Radio Shack or your local hardware store (e.g., light switches).  I'll leave the aesthetics up to you.

As was mentioned above, this is a useful addition for guitars that use batteries as it is an easy way to prevent them from draining.  If you do this mod, make certain you cut the ground wire (i.e., the one that runs to the outside ring of the output jack).  Even though a guitar is an AC circuit, the ground is still on one side (don't ask!).  Of course, if you don't anticipate using active electronics, it doesn't matter which side of the circuit you break.

Ideally, the best place to insert the switch into the circuit is just before the output jack.  Certainly, some other places will work just as well, but this is the safest approach so you don't end up cutting, say, your neck pickup but leaving the bridge pickup connected.  That wouldn't get you anywhere.

If you are just looking for something to shut off your guitar when you set it down (i.e., to keep it from draining the batteries), you can install a mercury switch.  These types of switches open or close (depending on their physical orientation) by conducting through a "bleb" of mercury encased in glass.  When the mercury falls across the contacts, the circuit is opened.

If you add one of these to your guitar, you can position it such that it will break the connection to the ground when you stand it upright when you are not playing.  However, in practice this can be a bit difficult to add because you can easily end up moving such that the mercury ends up cutting your signal just as you strike your killer pose in the middle of a solo.  Moral: don't be a poser!

Note that it is somewhat difficult to find mercury switches these days for a variety of reasons.  Specifically, hello!, it's mercury.  Since this is a toxic heavy metal (like that produced by many late-'80s hair bands), it isn't the safest thing in the world to have it just about anywhere.  Home thermostats used to more routinely use mercury switches (although bi-metalic strips are also common), but they're almost all digitally controlled these days.

Another problem is that these switches are notorious elements in home-made bombs.  Guy finds a package on his doorstep.  He picks it up and tilts it to see who it's from... BANG!  I wouldn't recommend looking for a switch and finding yourself added to an FBI "watch list."