I learned how to make these from a friend of mine - and my kids adore them!
Cut the hotdog down the middle, stopping about an inch from the end. Then cut those two sections in half lengthwise as well. Put in boiling water for 3-5 minutes till the "legs" start to curl. Serve with ketchup or mustard for dipping.
Of course, this doesn't make a legitimate octopus because he's only got 4 legs, but cutting it into 8 legs is a bit tricky on a hotdog. :)