They used to be very common on some models of Gretsch guitars. Often, they can be identified by the presence of an extra switch somewhere near the edge of the guitar, just next to the Bigsby tremolo (the controls on Gretsch models have always been unconventional. But that's a story for another time).
Standby switches are sometimes referred to as a "silent switch." An almost identical mod is a "kill switch" which I cover on this page.
A final advantage of this mod is that, if it is wired such that it cuts your guitar's connection to the ground, you can leave the instrument plugged in without draining any batteries you have installed (e.g., for on-board pre-amps, active pickups, or other devices).
|How it's wired
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.
An alternate approach
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.
Like I said above, electronically there is no difference between a kill switch and a standby switch. They both cut the signal. However, the terms grew out of the fact that a standby switch is more like the "standby" switch on some tube amps. In other words, it's something to cut the signal while the rest of your gear is turned on, warmed-up and waiting. On the other hand, the kill switch is a momentary interruption of the signal for more immediate musical purposes. Don't worry about the semantics; only the music matters in the end. Think about how you'll use a mod, then implement what you want as you need it.