You decorate a dollhouse just like you decorate a real house except…
Remember that on most houses from the back you can see all the rooms at once, and because the eye sees the entire house you must consider the outside too.  Color is the easiest way to coordinate your project.  Choose no more than four colors for your theme and use them for major elements…walls, floors, and larger décor items like drapes, spreads, and upholstery.  One of the colors should be a neutral color.  Use accessories to add other colors…vases, pictures, tapestries, tableware, lamps, and pillows.
 
The smaller the scale the more important it is that your décor be in scale.  Also remember that scale has more than one dimension.  Scale thickness is also important when one dimension will throw off “your look”…mirrors, rugs or flooring, and the thickness of some furniture may be in scale size-wise, but the edges will look too large and out of proportion.  Furniture is a major element so check that the furniture elements are in scale.  Inexpensive furniture may be made with material that is too thick.  On many beds for instance the headboard can be a quarter-inch thick.  Real wood headboards will not be three inches thick.  Some imported doll’s house carpets have snow white fringe more than a half inch long.  Real rug fringe is not six inches long, and not so white.
 
You need to decide which is more important to you…IS real, or LOOKS real.  Quilts for instance when made as if they are real…with batting…will cause the quilt to stick out unrealistically on the corners of a made bed.  Keep pattern size in mind.  Wallpaper is an example of this.  If wallpaper has a tiny flower pattern that is only a half inch in size, which translates into flowers that are six inches big in 1:12 scale and a whopping 12 inches in half-scale.  Consider alternate materials with properties that mimic the object like paper drapes, or tableware. A piece of white tissue paper (on which you can draw a colored pattern with markers) looks very effective crumpled up from the middle and inserted in a jewelry jump-ring.
 
Realism is in the details.  A tiny wood table that otherwise looks real will often have a huge wood grain ruining the effect.  Small accessories need to match the scale of the objects upon which they are placed: a plate that is an inch across will represent a plate that is 12” across and look too big on your table.  Unlike real life, miniature furniture upholstery is available in very few patterns.  Consider recovering it or painting the fabric.  A solid color sofa is just as versatile in a mini house as it is in a big one.
 
Most dollhouse rooms are smaller than real life rooms so space is at a premium.  Avoid putting too many pieces of furniture in small rooms.  Many omit staircases to save space.  I have a three level house that is supposed to be a Victorian but this house is only 20 Inches wide.  A real house of this period would be thirty or forty feet wide…or thirty or forty inches wide…in order to contain rooms that are big enough.
 
When I make accessories for my house my goal is for the viewer to not be able to tell what it was that I used to make some object.  In other words if my granddaughter says “wow I like the apple pie you made with a soda-pop bottle cap” then I’ve failed.  Almost without exception ribbon used as a stair runner still looks like ribbon.  But tiny little baby dresses do not need a back affixed to a simple wire hanger or laid on a bed.  I’ve never found beads small enough to use as buttons…but a tiny dot of dimensional or puff paint looks very realistic.  Sewing anything is a challenge especially on a sewing machine.  About the smallest my machine will make stitches is 24 to the inch.  That translates into half inch long stitches in 1:12 scale.  Those look way to big, my little object looks like I’m sewing with rope using giant stitches.   Often glue gives much better results.
 
Determine how close the viewer of your creation will be when looking at the rooms.  There will be some ideal distance you determine.  Wall to wall carpeting with a teeny tiny pattern will look amazing at arm’s length, but from across the room a red and green carpet will just look muddy color.  Before anything…decide if you are going to electrify or not.  Wires will need to run under carpeting, or behind wallpaper, or across ceilings and that will influence your choices for them.  If you don’t electrify your project then avoid dark walls, furnishings, and floors.  Lighter ones will be seen much better.
 
Remember that your little house is a fantasy.  You can do anything you want with it.  The little figures with which you may or may not populate it with don’t really go up and down the stairs.  Whether they are comfortable or not sitting on a rock-hard sofa is not important.  You never have to clean the cat box in a dollhouse, do the dishes, or sterilize the commode.  In my little house I can have silk bed linens and three kinds of pie on the kitchen counter where in real life I sleep with three Pugs and silk just doesn’t work, and I can’t bake.