I am trying to recreate 
for a flight simulator game I play (DCS World). I have the software working now, but I am unsure how to build the actual panel itself.
I want all the lights to be flush in the panel, as in the picture, rather than typical dome LEDs popping off of a board.
A few friends have suggested making a small enclosure around each LED out of hazy plastic and making those sit flush behind the panel but I am unsure how to do this or if it is the best approach.
What would be the recommended approach and how do I go about doing it?
Best Answer
One solution is to do this in two pieces.
First, you would make a PCB with the LEDs in the desired locations. This PCB would also contain any circuitry required for the product.
Second, you would make the actual cover, with translucent areas above the LEDs. This would mount on top of the PCB, usually with a small air gap.
Obviously, you would need to use standoffs (or some other method) to keep the two layers positioned appropriately.
A common problem is when light from one LED bleeds over into another one of the holes. This can be solved by a combination of LED specifications and/or light pipes.
LED Specs:
Different LEDs have different viewing angles. You can select a narrower angle to keep the light where you want it:
Light pipes:
A light pipe is a piece of clear plastic the acts as a waveguide for visible light. You attach/glue the light pipe into your top panel, with the bottom edge of the pipe directly over your LED. Most of the light is then guided up to the surface of your panel.
In this picture, the smaller end is the part that goes through your top panel, and the wider end hovers over your LED: