The main governing principle is very simple and one of the most elegant mechanisms in biology. It is based on concentration gradients.
Briefly, certain cells secrete signaling molecules (called morphogens) that are detected by other cells. These molecules then activate the transcription of genes in the target cells. Since the molecules in question are produced by a subset of cells, their concentration varies according to the distance between the receiving cell and the producing cells. Different concentrations of the signalling molecules have different effects and this allows the formation of really quite complex patterns.
This can be illustrated very well using Wolpert's classic French Flag Model:
So, different concentration thresholds of the morphogen result in different patterns of gene expression. This simple system can give extremely complex results (such as yourself, for example). It gets more complex when there are multiple morphogens acting in tandem. Say morphogen1 is produced by cells on the left and morphogen2 by cells on the right, cells in the middle will have varying concentrations of both morphogens and will react accordingly:
Just about every pattern formation during development boils down to differential concentrations of diffusing morphogen molecules, it really is a wonderful example of how simple systems can give rise to extremely complex results.
On an unrelated note, this has absolutely nothing to do with evolution. At least no more so than any other biological process. If your friends do not accept evolution, I don't see how they can use this as an argument. Even if a god created humanity in his or her image as these people tend to believe, babies are still born and they still develop in the womb. As far as I know, even the most fundamentalist Christians do not believe in a mechanic god that puts babies together in the womb from some kind of IKEA kit. Even if humans sprung fully formed from the hands of this god, individual infants are still formed out of multiple cells. There is therefore a need for a mechanism that can coordinate this process, whether this mechanism evolved or was designed is irrelevant, it is still there and extremely easily observable (images taken from here):
The image above shows the locations and concentrations of various morphogens in a fruit fly embryo. You can see the concentration gradients clearly.