First, select a room! I usually go for the upstairs, but whatever works for you! After that, go into editing mode using the down arrow on the d-pad. Press the right arrow on the d-pad after that to find every single thing you've ever catalogued!
To avoid stress, choose a theme or idea before placing the items down. I chose a campfire gathering theme so I placed a bunch of usable, outdoor-themed items on the ground and chose a suitable wallpaper and flooring.
Hover over an item and press ZR to duplicate it as I did with the orange sleeping bags. Hover over an item and press x to view it's customization options as I did with the hammock (not all items are customizable).
If you have two items stacked, like this table and this water cooler for instance, pressing the L button will move you between the two layers.
After decorating, it's time to add villagers! They can be found this way: press the right arrow on the d-pad to access storage, press the right bumper until you have reached the far right tab, the Residents tab, and click on the character to add them. Amiibo also work here!
By clicking x while hovering over the villager (or yourself), you can change what they're wearing. You will find every single item of clothing you've ever catalogued here so try not to be too overwhelmed with the options!
After dressing them, hover over them and press the ZR button to select their emotions. In this case, I assigned the greeting emotion to Nan, the joy emotion to myself, and the surprise emotion to Tybalt.
Then, exit editing mode by pressing B (Finish) and then open your camera. After opening your camera, set up the shot you want to take (play w angles here), press A to activate the emotions you've assigned to each villager, and then take the photo!