Also called cloth wipes or family cloth, cloth toilet paper is simply replacing disposable paper products with reusable, washable cloth ones. I made the switch last month and I really like it! When I was sewing some teeny tiny diapers for Zari's new doll, I noticed that I had lots of smaller scraps left over from making diapers. They were mostly washcloth sized--perfect for cloth wipes. I rounded off all the irregular corners and had an instant stash of cloth toilet paper. It's no extra work to use cloth toilet paper since they go in the wash together with Zari's diapers.
I keep the clean wipes in the bottom drawer of my bathroom vanity, which I can reach when I'm sitting on the toilet. Used wipes go in the diaper pail, which is right outside the bathroom door.
I should note that I keep "regular" toilet paper on hand for poop and other really messy things that I don't fancy throwing in the wash. I am amazed at how little toilet paper we go through now. If I were really motivated, I suppose I could dispense with the disposable TP altogether, but for now I'm content using cloth for pee (and blowing noses, etc) and paper for poop. Now that I'm pregnant, I have to pee all the time and the cloth has really cut down on our TP bills.
Although there are places that sell cloth toilet paper, it's ridiculously easy to make your own for cheap or even free. Cut up old t-shirts, flannel diapers/pajamas, or other knit material--no need to hem or serge! Cut old towels into smaller pieces and serge or hem the edges. Use old socks that have holes in the heels or toes. My own wipes are made of hemp fleece, cotton terry, or bamboo velour with the occasional old sock thrown in.
For only $0.50, you can download a Guide to Family Bathroom Wipes at Fern and Faerie. This blog post at Walk Slowly Live Wildly also has a detailed explanation of how her family uses cloth toilet paper, as well as just about every other imaginable cloth product to replace disposables.
If you aren't already using cloth toilet paper, I challenge you to make the switch!