Cut your napkin in a perfect square. Take your finished measurement and add 2.5cm to each seam for folding & sewing. It is very important that you cut perfectly straight and with the grain of the fabric - otherwise folded napkins will never match up perfectly - a pet peeve of mine.
For example: should you wish to have a 40 x 40cm napkin, cut the square 45 x 45cm. Ensure you cut with the grain line of the fabric. The best way to do this is to use a pulled thread as your guide for one side of the napkin & then measure a square from this line.
Dinner napkins are better on the generous side, even 45cm finished. Tea napkins are smaller - 12" is the 'correct' size - 30.5cm finished.
On each side of your square rule a line 1cm from the edge (use special marking pen that washes out or disappears with time). Use this line as a rule to iron in a single fold on each side. At the corners, simply fold one edge over the other in a square.
Once you have ironed in your folded edge, turn the napkin right side down on a table. Open out a corner. Take a compass & open it to 2cms. Stick the point of the compass in the corner where your 2 ironed in folds join/ meet & then draw an arc. Repeat at each corner. You now have your 2cm line for your sewing line. Use a normal pencil compass but don't make too dark a mark. This mark will be enclosed within the seam.
Fold the napkin corners in half, right sides together, so that you see your compass mark on your fabric. Make sure the fold is perfectly down the middle of the corner with edges matching PERFECTLY.
From this mark, sew a line of straight stitches perpendicular (90° angle) to the fold of the fabric. Sew from the fold to the ironed line and reinforce this by going backwards over your stitches. As shown by the blue line I have drawn on the fabric in this photo:
Then trim off the extra fabric as shown in the picture.
Do the other 3 corners in the same manner.
Now fold the complete seam under & stitch down with a straight stitch.
You can also use a decorative stitch if you prefer.
You can now decorate your napkin with any means you choose.