It's pretty dumb to seek medical advice on Everything or on the Internet in general. This is a very rough sketch. Keep that in mind.
Phalloplasty is also a surgical enlargement of the penis, either length or width.
Theoretically, the ligaments that are attached to your pubic bone are snipped and this may or may not increase length. It generally does but sometimes does not. This can be with a scalpel or laser. Sometimes fat or other tissue is used to help increase girth.
This surgery can cost upwards of four thousand dollars, US, heavily depending on what is increased, length or girth or both.
More along where the Dictionary Of Sexology says is the actual reconstruction/creation of a penis follows. My example will be mostly from a female to male transexual pov. Reconstruction is much different and varies very heavily on a case by case basis.
To create a penis, generally some skin is needed. The skin can be taken from underside of the forearm or part of the legs after using a tissue expander. It can also be taken from a vulvectomy or mastectomy (which, given this is a sex-change operation makes sense). Not only the skin, but many of it's veins and arteries and nerves are taken.
The vaginal opening is closed, and the labia majora are used to create a false scrotum. The actual volume of the new penis is often created with a skin tube, which can result in infection and outright failure. Sometimes the nerves in the pubic area are used, while sometimes the clitoris is incorporated into the penis.
The problem with the above description is that it, of course, doesn't cover all the bases. There's more than one way to make a penis. I guess.
A well-done female to male surgery does not result in the loss of orgasm.
The actual penis is fashioned around a catheter, which is connected to the urethra. During healing, another catheter is inserted suprapubicly, which is later removed.
The hospital stay can be completed in about one week with supervision afterwards for a few weeks.
About 9 months later, after sensation comes fully back to the patient, the second stage of the surgery begins, during which false testicles are implanted in the scrotum and implants for erection on demand are inserted. These are, currently, the same ones as used for impotence.
On a totally psychological level, this surgery helps people view their genitals in a better light. (Duh.) But they don't really show much of a difference otherwise. Which is not to say this may not be an appropriate surgery, but rather the patient should be aware that this isn't a miracle surgery, and, like everything else, further work is needed.
The proceedure has improved drastically recently, and feelings are the implants currently used will be disposed of and new ones made specifically for this purpose will be used soon.
The sex-change surgery tends to cost somewhere between ten and twenty thousand dollars US.
References
http://www.grsmontreal.com/phallo.htm
http://www.symposion.com/ijt/ijtc0301.htm
http://www.yestheyrefake.net/Phalloplas.html