How to teach..
The first thing I teach is not so much a circle, but a rectangle (or oval). Making the two long sides parallel to the runway. Make sure to keep BOTH of the long sides straight (people have a tendency to allow the plane to come in closer on the back leg) once a good rectangle is perfected, I have them drop altitude on the close leg as if it were a final approach, then once the plane passes them, they throttle up and go around again. This keeps up until they can do it well enough, and they are comfortable enough to just chop the throttle and let it settle in for a landing.
As far as HOW to teach... That's a little tougher. I find that everyone teaches differently, and everyone learns differently. But the first thing I try to teach in "Ground School" is to make them realize that turns are accomplished by balancing the plane with the aileron and elevator, and that if you want to tighten the turn, BOTH must be applied! (It is a common rookie mistake to want to tighten a turn by increasing aileron without increasing elevator resulting in a roll, or to be more precise... half a roll followed by a "panic pull-up" into the ground)
The other thing I like to engrave in their heads is the way to avoid the situation I just mentioned. When the plane gets in trouble, it is human nature to want to pull "UP" to avoid the ground. Novices don't realize that "UP" when you are inverted, is "DOWN" or when you are sideways is "a spin waiting to happen". You must teach them to overcome their instincts to pull "UP" and teach them to "Level The Wings" First and Foremost!