As long as the topic is Black Walnuts I hope Simon doesn't mind if I request to broaden the question a bit. I've got a 5 gal bucket of black walnuts I've been collecting all summer with the intention to process them in the fall and I recently noticed that most have turned black or are growing some sort of mold. Are they done from a human consumption perspective or is the nut still good once I get crack it open?
When the hull goes yellow/black, the taste of the nutmeat gets stronger. Some say this is bad, others like them with strong taste. I would guess that for baking or on salads, the taste would be fine, but for fresh eating, perhaps a bit strong.
My methods for processing black walnuts are:
Hulling: lay out one walnut deep on a hard surface (concrete pad, for instance), stomp on them with rubber boots, pick out nuts with hands (2-3 pairs of rubber/latex gloves). I have found there is no need to wash, but some say to wash the nuts in a basin, and do a dip in a chlorine solution. This might be required in some regions if you are selling them. I tend to think they are extra work at a time of year when wet fingers get very cold. And the chlorine doesn't seem useful to me, since when the nuts are dry, pathogens can't really be living on them (and I dislike using synthetic chemicals, especially needlessly).
Drying: Hanging in mesh bags. This is the easiest for me, but I could see getting better results by laying them out one walnut deep in cardboard or mesh boxes. When I do this, the squirrels take them immediately.
Cracking: My best method for cracking by hand (so far) is using a 3lb sledge hammer. Lay the walnuts one level deep on top of fabric that can take some impact (ie. clean denim or heavy canvas), and beneath that, a concrete pad or similar. Whack the nuts for a while with the hammer until most of them are split. Some rogues will fly everywhere (I actually where safety googles), but less than you might think. There may be some walnut shells under my laundry machine.
Sorting: Gather them up into a vessel, and bring them somewhere to sort. I do this in front of a movie when I'm too tired to do anything else. Take out all the half pieces - these can go into the next cracking cycle - they are typically too hard to get the nutmeat out of. Once these are out of the way, have two secondary bowls going. One for nut and one for shell. Take out all the big pieces of nut, then get into picking smaller ones. It's important to stop before you are going for really fiddly ones if you are trying to increase the speed of this operation. Once you are down to nut fragments and shells that are too small to separate, give up, and give the rest to chickens. They can sort through the shells for the rest of the nut meats. (Note, I had a friend test this with success, but I suppose there is a small chance that eating a shard of nut shell would harm a chicken. I would expect it to just get added to their gizzard gravel, as opposed to actually hurting them. I would also expect that chickens would be highly skilled in not ingesting a piece of nutshell.)
Caveats: After a few rounds of testing this, I get about 1 ounce of nuts per hour of sorting. This is not very good, but blows other hand methods I've tried out of the water. There is also space for speed improvement based on practice in sorting, and knowing when to stop trying to get small pieces of nut meat out of the mess in the bottom of the bowl. Other methods that work include vice grips and grinding a pair of pliers into two sharp heads (think of it as a parrot beak that actually cuts the shells). I tried both these, and found them very slow, and sometimes leading to badly banged (even bloody) knuckles. Vice grips is second place as a method for me, and I think pretty similar to those one nut cracking machines for speed. The method above is a variation on the old hammer on an anvil, but scaled up to try and get a faster speed.
Oh - and for mold etc. I wouldn't worry too much about that. I had all kinds of mold, and larva crawling all through the hull goo last year as they went black. This had no effect on the nuts, since the larva can't get into them. They disappeared after the first stage of drying (hanging in my barn where some dripping was okay). By the time I brought them into my cellar for longer storage, they were dry enough that all the larva had gone.
Processing in bulk when you have enough is better than trying to hull them when young anyway - they are really hard at first.
Something else that you should note: sometimes the nuts that fall off the tree early are extra small, or not ripe. The tree may be aborting nuts that are not worth shelling.
I think Rob has done a fine job outlining the process. Some say that not cleaning the nuts (the husk, and black residue) can sour the nuts as it does leach through the shell. I've found that something this is true, sometimes not so much.
My favorite method to remove husks is to lay nuts on the driveway and then drive over them, as we go to and from our daily routes. I then soak them in a bucket of mild chlorine solution and then scrub them a bit - that is, if I intend to store them for eating. I dry them hanging in mesh bags like Rob.
A good nut cracker uses leverage well to help crack the nut. Forget a hammer, unless you main objective is to release stress and tension.