A design document gives you something to follow, to guide you along the process instead of getting stuck after five minutes of doing something. Firstly you need to create a brief; the initial ideas and what not, for example; the technical spec of poly count, texture sheets, platform it is for. (xbox, ps3, wii) These are the main things you should look at when within game art to look at. But after recently finished my group project design document, it's not all about that.
A design document is everything that you have encountered through out a project. You should talk about everything; from the good, the bad and the ugly. Problems that you have had and how you have solved them, or even if you haven't solved them and say why you haven't.
Within the design document I like to have alot of images to show work and how everything had improved along the way. It is alot easier to explain what you are doing than just using words.
Within a sketch book there is alot of documentation, such as the sketches. This is documentation of what you see, you are putting it down on paper. Just because it isn't words does not mean that it isn't documented. With alot of my sketches I have little notes dotted around for me to remember things. They don't always make perfect sense but I understand them as I know that it is my sketchbook and people aren't going to read it :)
Just simply write everything down, in the future it really helps, as I have found over my second year at uni.