Instead of explaining the steps to creating the grid, I'll just provide a couple of tips. First, the column width is dependent upon the font of the Normal style (which by default is usually Arial). Quoting from Excel's VBA help file (the ColumnWidth property):
"One unit of column width is equal to the width of one character in the Normal style. For proportional fonts, the width of the character 0 (zero) is used."The row height is measured in points (1pt = 1/72 inch or about 1/28 centimeters). A point is a "unit of measure referring to the height of a printed character" (quoting from the VBA help file for the RowHeight property).
Now, assuming that you are using an Arial font, you create different grid sizes using the following table:
|Font Size||Row Height||Column Width|
To make sure that the cells are square, create a square using the drawing tools (making sure you hold down the Shift key, or you'll end up with some arbitrary rectangle).
I've notice that when I print from Excel, the grid doesn't always end up square, so the drawing is no longer the same aspect ratio as on the screen. To get around this, I just copy and paste into PowerPoint. There may be a better solution, but I haven't found it yet. One approximate rule of thumb for printing a square grid is to make the row heights 1 pixel larger than the column widths.
Update 2/9/2010: I just created a Graph Paper template for Excel and Word that include a variety of different square grid sizes as well as an isometric grid. I also came across a good article on mrexcel.com: Excel as Gridpaper for Drawing.