Most work off the same basic methods with slight variations on the details so you are likely to get many answers that will generally work. Here is my method:
Polish to 800X or 1200X hand rub using a water based fluid for the wet sanding on the final passes, then wipe the blade entirely clean.
Etchant- Radio shack PCB (printed circuit board) etchant, ferric chloride, cut from 1:1 to 1:3 ratio with distilled water. Due to the chemistry and saturation of Fe, the water is essential; the stuff comes in concentrations for etching nonferrous circuit boards not steel so you need to adjust it. You will get some Radio Shacks that will not carry it, it depends on location, the chain as a whole still carries the stuff as I ask every time I buy it if they still do, any branch should be able to order it for you just you cannot yourself due to their hazardous materials policies.
Initially quickly submerge the blade in the solution for about 30 seconds, if you go slow or hold the blade at any point in the submersion it will etch a line where the surface of the liquid was held on the blade.
Remove the blade and check that the etch is entirely smooth and clean with no shiny spots that are masked from the etchant from finger oils or other smears. It is important that you find them now and get rid of them because after around 60 seconds in the etch you will be going back to the sand paper to remove them. I have etched my share of finger prints into blades

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Wipe the blade clean to of the black film that will begin to form in order to completely inspect it and then thoroughly rinse. Leaving streaks of that black oxide film will also etch nasty lines into your blade.
Go back into the etch for 1 minute and then check it again clean it up, rinse and repeat for a few more minutes. The important thing to remember is several shorter etches are far superior to one long one. Cleaning and inspecting the progress makes for a flawless finish.
Temperature of the etchant has profound effects on the action and I would advise trying to keep the stuff at the same temp so you can get consistency and predictability in your results. Warmer etchant will bit faster, make darker oxides but have a rougher look. It will also form bubbles that will be static and show up it the etched pattern.
Continue etching until you have the relief or "topography" that you desire, I check it with my finger nail between etches. When you get it there, take the blade out and leave the black oxides alone, leave them right where they are at for now. The previous etches are for the relief of the layers, the final etch is for color alone.
Rinse very well, damascus should be less prone to rusting than monosteel, not more! If somebody's damascus rusts easier,
they didn't rinse and neutralize properly. You need to cancel out the mild acidic effects and then get rid of all the leftover Cl atoms. I like a dip in tri-sodium phosphate TSP followed by a spritzing with Windex and then pat dry.
The final step in my process is a "secret" the vastly talented Brian Lyttle Shared with me, to give credit where it is due. I prepare a tube or large basin of water big enough to submerge the blade in over some heat. I add around 1 tbs. of baking soda as a further neutralizer (just in case) and then bring it to a boil. I keep the blade in there at a rolling boil for around 15 minutes and then remove an allow to air dry. The boiling converts the existing oxides to even darker ones and sets them very strongly in place so they do not come off in subsequent polishing. The hot blade will dry so quickly that here will be no problems with rust.
Next I use 2000X paper to rub the oxides off all the high spots to get a very white and black contrast, and then I take a few light passes on the buffer to turn the white a mirror silver and give the black a nice sheen. Buffing blades that have not been boiled will quickly give you silver on silver

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Now rub a light oil on the surface and when you wipe away the excess you will take of all the loose oxides and buffer crud and underneath the pattern should jump up and say hello! A final coating of renaissance wax will seal things down an make the blade very maintenance free.
To many this paragraph would be a
huge secret that allows them to keep the look of their steel to themselves, but it is all rather simple and good steel comes from the forge not the etch tube.
This is one that is so commonly asked I think I will also add it to my list of topics to address on my web page.