No you don't need expensive software, grading can be done with pen and paper.   Lucky I was paying attention at college!

Grading is changing a pattern's size.  I've been grading my pattern for the Mitchell Mitchell Shift Dress from a size 3 to a size 4 and 5.  For my grading, I'm using a Burda measurement chart, because I like their fit.

My measurement charts shows that on average, 3 to 5 year old kids are shooting up and expected to grow 6 cm in height each year.  They don't get a lot wider - ie. their chest measurement increases just 1 cm for each year/size.

Just enough genuine sixties fabric in my Mum's garage to make this trio of dresses to check my patterns... 

So I've traced  the original size 3 pattern onto paper and am making a "nest" of 3 sizes, by adding the increments from the measurement chart.  I scanned my handdrawn grading and traced around patterns in Illustrator to neaten them up. A quick trip back to Officeworks and I have my patterns printed full size.

Last step was to make up my patterns in the 3 sizes to check pattern pieces sew together well.