Thumbs are the reason most people quail at the thought of knitting mittens. I confess they're not my favorite part, but -- they're small! And the pain is brief. I often save up two or three pairs and do the thumbs all at once.
You have 14 stitches from the thumb gusset threaded onto a contrasting piece of yarn. Leaving that holder yarn in place, put 7 of those stitches on one dpn and the remaining 7 on another.
Now you need to finish the remaining part of the thumb by picking up stitches. Look at that open edge -- you can see where you cast on 2 stitches to close the gap that remained when you removed the gusset stitches. We will call those stitches B and C. You need to pick up one stitch on either side of those, too -- those will be A and D. So -- ready?
You don't have any attached yarn to work with, so you have to start with a new ball (well, it's not really a new ball, it's what's left after you finished off the top of the hand). Tuck the end down inside the hole for the thumb -- don't skimp; put 6 or more inches down inside the mitten.
Now, holding the mitten so the two needles with stitches are away from you and the edge where you're picking up is closest to you, begin. You will pick up 4 stitches; I'm calling them A, B, C, and D.
A: Invent a stitch by picking up in the crossbar of a stitch between the stitches already on the needles and the two cast-on stitches and pulling your working yarn through, forming a stitch that stays on the needle.
B: Put your needle through the first cast-on stitch and pull the working yarn through (2 stitches on the needle).
C: Put your needle through the second cast-on stitch and pull the working yarn through (3 stitches on the needle).
D: As with A, invent a stitch by picking up in a crossbar between stitch C and the first needle (4 stitches on the needle).
Here's how they look:
You now have 18 thumb stitches. On the first round, you'll decrease to 16 as follows:
Knit 13 stitches. Move stitch 14 to the needle that holds stitches A, B, C, and D. Now knit stitch 14 and stitch A together.
Knit 2 (stitches B and C).
Move stitch D to next needle. Knit stitch D and stitch 1 together, so 16 total stitches remain. This marks the beginning of the round. At this point I usually spread out the stitches more evenly, for example, 6-4-6.
Knit 14 rounds plain. (Sometimes I knit 13 rounds -- it all depends on the thickness of the yarn I'm using. Make sure you knit the same number of rounds on your second mitten--it's easy to count up from your holder yarn; that's why we leave it in there.)
If necessary, rearrange your stitches so you have a multiple of 2 on each needle.
k2 tog all the way around (7 stitches). Break yarn, leaving 8-12 inches.
Finish off exactly as for top of mitten: thread yarn through all stitches, pull closed, then do it again and pull tight. Thread yarn down through exact middle, give it a sharp tug to form rounded end of thumb.
Turn mitten inside out and weave in ends. Put your hand inside -- are there holes at the base of your thumb? (This does happen.) If there are, use the end from where you joined the yarn to discreetly repair those gaps.
Make another one!