The general answer (although the details are still being worked out) is called the "morophogen gradient model".
A morphogen, or a protein or other small molecule, serves as a signal to tell cells what to do. Imagine a bunch of cells in a sheet that will eventually become part of a tissue. Each of these cells will become something different from their neighbors, but initially, they are all the same.
At one end of this sheet of cells, a set of cells (blue in the figure) produces a secreted protein (the morphogen) that diffuses through the extracellular space next to the cells. The cells capture the morphogen. As the morphogen gets further away from the cells that produced it, the concentration of the morphogen decreases (brown curve in the figure).
One might think of the cells that produce the morphogen as a cell phone tower, and the further away one gets, the less signal one would perceive. And the cells then respond depending on how much morphogen they perceive (white, red, and gray in the figure). So two cells next to each other will perceive different amounts of signal (morphogen), and they will know to do different things. One might become a neuron, while the other a skin cell.
In this way, a single signal, in the form of a secreted protein called a morphogen, can pattern an entire tissue.
