So first I fold the fitted sheets like this, tucking each corner into the other corner. I find that laying the sheet out flat really helps. Fold it in so that you have a shape that looks similar to this:
Next fold one side up about a third in keeping it neat and straight.
Fold up the remaining 1/3 so you have a nice rectangle of sheets like this...
Now I fold it up by thirds and set it aside.
Next you need to fold the flat sheets in a similar fashion as the fitted ones. I've always found these to be soooo much easier to fold. What about you? I like to make a long rectangle and then fold it up almost all the way. I leave just enough room so slide the pillowcases in that left-over space.
See how nicely they fit in that space you provided.
Now for the fun part...just put those fitted sheets right on top of the pillow cases. They should be just slightly bigger than the cases but that's ok.
Fold up the flat sheets around the cases and fitted sheets:
Voila...there you have it...nice and neat and ready for the linen closet! Thanks J.J. for inadvertently teaching me how to fold sheets.