"Writing is fifty years behind painting." -
Brion Gysin
William S. Burroughs used the cut-up technique to assemble entire novels, notably The Ticket That Exploded. The innovation that Burroughs brought to the technique was the use of his own writing to make the cut-up. Whereas the surrealists typically used clippings from newspaper stories to randomly splice together an original work. Burroughs' original method was the so-called fold-in, where he would type a few pages of straight-forward text, fold and cut the sheets into quarters, then randomly tape them back together. Thus a new work was created that was not a random assortment of unrelated ideas but a temporal reorganization of a linear narrative. Burroughs was attempting to make fiction that was not strictly one-dimensional but utilized multi-dimensional montage techniques that visual artists could so easily employ.
In applying the technique to his novels, I can only make an attempt to discern his methods. Usually cut-ups are done over the span of individual chapters. The first half is normal writing, probably the original text. Somewhere in the middle the cut-up begins, which is a random re-ordering of the first half of the chapter. With longer chapters, there may be more alternation between regular and irregular text. This has the effect of activating a deja vu sensation in the reader because the first occurence of a phrase or word in the normal text may have been registered only subconsciously. The technique can be repeated ad infinitum, making cut-ups of cut-ups. Burroughs will also cut in phrases across chapters (often at a distance of more than a hundred pages from the original occurence). This long-distance cut-up is used extensively in Naked Lunch and has been termed a word-hole.
To make cutups of your own writing:
http://reitzes.www4.50megs.com/cutup.html
To read an example:
Cut The (idea) Technique up