To clarify the technique, I wouldn't use this on a T Shirt. It is good if you are making mouse pads, banners, flags, etc. There is a product called Bubble Jet set that can make the printout waterproof.
For doing T-shirts the best way to still do this is with the cool peel iron on transfers. Use the brand that is made by the manufacturer of your printer for the best results.
As far as putting the sheets of fabric in your printer I have done this to make mouse pads that look like persian rugs, mouse pads with pictures(although you can do this with the iron on transfer.)