Drywall repair is easy, but time consuming if done properly. Below, is a list of tools and materials needed and a thorough step-by-step guide with additional tips for a "not to be seen repair" and very little sanding, if any. Sanding of drywall is very dusty and goes everywhere. The least sanding, the better for your lungs and home!

Basic Supplies Needed:
Gypsum Board (Drywall) enough to cover repair area (Be sure to get the right thickness, 1/2" or 5/8"; 5/8" is generally used in garages, but can be in homes exterior facing walls as well)
Box cutter
Keyhole saw
Paper drywall tape or Mesh tape (I prefer the mesh tape)
All purpose joint compound, also referred to as mud, drywall mud, joint compound
Drywall sanding screen or sanding block 120 grit works well
Hand sander for use with the sanding mesh
Sponge
Tape measure
Pencil and paper for measurements (you may want to draw a template with measurements if repair area is odd shaped or has an outlet or switch)
Straight edge guide, such as a builder's square or ruler
Drywall screws 
Scrap wood for securing drywall to wall if studs are not available or drywall clips
Drywall knives (They come in many sizes, the most popular to use is a 3", but the area you are working in and the size of the repair will determine the size of the knife you will need. For a clean finish, it is best to use a knife that covers the repair area in one or two swipes.)

How To:
Repair Prep Work:
Step 1: Cut the repair area into straight lines using the box cutter or keyhole saw, resulting in a square or rectangle. If you feel creative a triangle will do too, as long as the opening is of straight lines.

Step 2: Scrape the cut lines so the drywall opening is smooth and level. Cut off any paper burrs and remove any drywall screws or nails that will hinder placing a new piece of drywall flush against studs if they are present.

Step 3: Measure your opening: You can draw the opening shape on paper and then put the measurements on the drawing if you like.

Step 4: Using a straight edge and your measurements, draw it onto the new piece of drywall. It is easier to cut a straight line if you use the straight edge as a guide. Line it up to your lines on the drywall, hold it tightly in place and with your box cutter, run it down the straight edge with a bit of pressure. Drywall dulls blades pretty quick, so depending on how many repairs and the size, you may have to change your blade.

A trick with cutting drywall: You do not have to cut the drywall all the way through to the other side. You can score it and then lift the piece on edge. Facing the white side of the drywall and holding the drywall above or to the side of the scored area, gently pull it towards you as you gently push the opposite side of the scored area away from you. This will break the drywall along the scored line. Then, holding the drywall broken piece at about a 45-degree angle or at an angle that allows you to see the break line on the back and access the paper backing along the break line, using your box cutter, cut the paper backing. Hold on to your piece of drywall as you do this, you don't want it to fall and break. Viola! Now just take your box cutter and smooth the cut edges.

Making the Repair:
Step 5: You need something solid at the edges of the old and new piece of drywall to secure to. If you were able to cut the repair area exposing half a stud on the edges, your job just got easier. If not, then you need to fit a piece of wood along the edge of the existing drywall that sticks out about 1 to 2 inches into the repair area for securing the new drywall. Secure this "backer-board" with drywall screws on the existing drywall edge. Place your repair piece in place and secure to stud or backer-board with drywall screws; one on top and bottom corners, about 1/2 inch in from the edge, one in the middle and about every 6 inches in between these for larger pieces.

OR you can purchase drywall repair clips and follow the package directions for use.

Step 6: For a smooth finish to the repair and to alleviate a seam line, trim the new and exiting drywall edges to a "V". It does not need to be deep or large, just give it a slight bevel on the edges so they are not hard squared joints.

Step 7: a: If using paper tape for the joints, apply a layer of joint compound about 1 inch on the repair piece, filling the "V" and about 1 inch on the existing drywall. Apply the paper tape covering the drywall joint with the joint being in the middle of the tape and smooth into place with a drywall knife. Some joint compound will ooze out, which is good. You want to get the paper to lie flat against the joint with no air pockets underneath. Do this to all the joints, keeping the compound smooth feathering onto old drywall to blend. Basically, you do not want edges of joint compound.

Once this is completed, apply another thin layer of joint compound on top of the paper tape and over the entire repair piece to blend all edges to a smooth finish. This is your skim coat base coat of drywall. Let dry completely.

7:b: If using mesh adhesive joint tape, no need to pre-coat the joint with compound. Apply the mesh to the edges and press for adhesion to drywall. Coat the taped areas with a thin layer of joint compound being careful to fill the "V" and mesh to a smooth finish.

Continue to coat the repair piece as stated above.

Finishing:
Step 8: Once the base coat is dry, you can use a drywall knife to scrape any burrs and a damp sponge to feather any edge lines for blending. Or, you can use the hand sander to smooth everything and then dust your house after. : )

Step 9: Apply a final thin coat of joint compound over repair filling any air holes, divots or unleveled areas. Also, be sure that the tape or mesh is not visible. Let dry and repeat Step 8.

Step 10: Texture your repair for best match of existing wall finishes. Some textures can be achieved with joint compound and a light hand; others may need a little help from a product such as spray orange peel texture. Texturing is a whole different article, so I will leave it at this for now.

Step 11: You are now ready to prime your repair with a base coat of prime such as Kilz or Zinser primer. This is important, as drywall is very absorbent. If you try to paint directly over the drywall, it will be absorbed and look chalky when dried. You may wish to tint the prime to a close match of your existing paint color because the base color or under-color has an effect on the end result of the color matching. Let the prime dry completely and finish the repair with a coat or two of paint.

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