My DD1 is 22 months and DD2 is 1 week old. I made sure that DD1 knew about the baby beforehand, I got the books "Waiting for baby" and "My new baby" for her to help explain too. She loved the books but I don't know how much she really understood.
For the actual introduction, DD1 came to visit us in hospital (I had to stay in a night), and I just made sure that I wasn't holding the baby when she came in, so I could give her a cuddle first. DH introduced the baby to her.
I have also done my best to make sure that DD1 has gone to all her groups (with grandma or daddy) as much as possible, so her routine is as unchanged as possible.
Overall, she's taken it in her stride so far, she doesn't pay much attention to the baby, except every now and again to go up to her, point at her face and say, "Got eyes", "got nose", which is rather cute.
I hope this helps.