Hi Joe,,
Derek is right about using small wood chisels, I use them some times,,, I also have used wood carving tools in the same manner.
Most of the time, I use an air powered die grinder, with small rotary cutters and use it like a micro router. It works for me. I have several of them, that I bought from Harbor Freight, You can get them for about $14.99 and I have used the diamond point sets they sell for about $3.99 for a set of 20 different shapes,, How ever they are a pretty fine diamond grit and load up fast, they will not take a lot of material out,, if you look in wood carving catalogs,, you can find the same kind of cutting tools that are in Ruby and they will cut better, I only use them for sharpening up the very tight inside corners,, I have found some very small burrs that have 1/8 inch shafts that fit the air die grinders,, those work very nice also, and remove more material faster then the diamond or Ruby cutters,, but there are NO hard fast rules,, ya use what every ya find and works for you to get you where you want to go,,, Main thing is to just have fun making your signs,,