http://www.vcaa.vic.edu.au/correspondence/memorandums/2007/28.html
this website has the official specifications, principles, etc regarding bound references.
for methods, you can use a bound reference in tech allowed SACs and in the tech allowed exams. You can basically put whatever you want into the bound reference, its just that you cant have any pages/notes sticking out of the book, that can be detached, etc. It has to have a single spine, and you can probably bind two or more books together at an officeworks or some place like that. I've seen bound references that contain three exercise books, and a text book all bound together.
ummm what else? its pretty much all explained in the website, but if you have any other questions regarding it.. 
But yeah like bomb said, you will only really use it maybe to check something, a formula maybe. Generally you dont use it often. But some people want to be very "prepared" i guess, and put everything in their bound reference. its like a safeguard against you randomly forgetting a formula or something like that.
If the best way for you to learn the course is to summarise it, then compiling the bound book would be an excellent way to revise and bringing it into the exam would just be a bonus. If that's not the case, I don't recommend you spend hours writing a bound book; it's best if you use the time to do questions. Anyhow, as is often said, time's of the essence in the second exam and you would not want to rely on your bound book for every other question.
Personally, the textbook would make a good bound book, because you do have a table of contents to quickly find the section you are after.
On the other hand, the BEST thing you could put in a bound book is "READ THE QUESTION." Put it in permanent marker on your bound reference - in all seriousness. A maths teacher in my school (an assessor) recounts a dialogue between her and the chief assessor:
"What advice would you give to students doing Methods?"
"Read the question."
"OK OK besides that?"
"Read the question again."
"OK!! Anything else?"
"Yeah, read the question a third time!"
An 'error' section, where you can write things like 'units' and 'don't forget dx on integrals' would also be a very useful thing to put on your bound reference.
I used the A+ Notes (commercial ones) as my bound reference and I wrote in big letters: RTQ