A little tough to explain, but you can figure it out by first constructing a seven-pointed star with a protractor & straight-edge and then folding it so that all of it's edges align. That tells you where the cut should be made in the folded paper, and then you work it backwards to determine the proper sequence of folds.
You can do this for a six-pointed star, as well. In fact, the six-pointed star turns out to be easier than the five-pointed one! I think Betsy Ross just wanted to put one over on G.W.