You have heard absolutely right my friend. A lot of people are earning a residual income through their blogs.
Here I can give you some of the tips for better blogging.
* To create your blog go to blogger.com and open an account or use your existing gmail id. You can also sign-up with wordpress as it is the second best blogging platform after blogger.
* Give a title to your blog which matches your contents. For example if you are going to write about blog writing then give your title as "Tips for Better Blogging" or something like that with at-least one keyword for better SEO.
* Never try to copy contents from other blogs or websites as search engines bots can easily detect duplicate contents which will affect your PR severly. Post useful and informative contents which visitors will like to read.
* At the end of your every post ask your visitors to comment and give suggestions.
* Reply every comment which you got on your posts.
* Post contents frequently because visitors as well as search engines both of them like fresh contents.
* Your pages should be easily navigable. Link all your pages to each other. So that search engine crawlers can easily crawl over all your pages and posts. Don't fill your pages with messy images and text which are not necessary.
* Submit your blog to major search engines like Google, Yahoo and Bing, or you can also use addme.com to submit your site to 20+ search engines with a single click.
* Submit your blog to major blog directories like Technorati, Blogarama, etc. You will get some quality backlinks from them.
* Give comments on YouTube videos related to your niche. YouTube receives a lot of traffic daily and lot of views on videos. So, if possible upload some of your own videos related to your niche with a watermark of your blog's url on it. You will get a lot of software on the internet for making videos.
* After you start receiving regular traffic now its time to monetize your blog. You can monetize your blog with Ad-sense. However its very difficult to get approval from Google. You can also use Adbrite, Adclickmedia, Chitika, Infolinks, etc to monetize your blog.
It's pretty hard to earn a good income through blogs. You will have to be consistent and patient. It will not yield results in a day or two. You will have to work hard for quite a few months or even years to get that potential.