One the best way to do stab wounds (but one of the most dangerous ways) is to do this:
-Take a knife and file it down so it's as dull as possible.
-Now strap a piece of sheet metal to the person being stabbed.
-Strap on some sytrofoam over that. Just enough so it doesn't make too big of a bump.
-Affix a blood packet (blood-filled condoms work best) to the styrofoam.
-Now, when the scene starts, have the killer stab the styrofoam. (Gently!!)
-The blood will run down, and when the killer takes their hand away the knife will stay in the stabee's "chest"
The above was submitted by cbrainerd@yahoo.com
Also, to just slice someone, put a small tube of blood on one side of the knife and run that side against the person's skin. A sponge also works just fine. In Thurston James book, "The Theater Props Handbook", he gives detailed instructions on how to make a blood knife with a syringe in the handle for spewing out the blood. It's a little hard, and probably looks no better than the sponge idea.
You could of course always buy one of those knives that retract into their blades.