Here is how it's done:
- Use the rectagle tool to draw a rectangle. You can use the Window / Effect tool set to define the size.
- Go to Window / Object and set the roundness to 100%.
- Go back to the effects window and select Bevel and Embose / Inner Bevel. Set it to flat and inverted with an angle of 135 (all other settings just take the default).
...and you're done
I've attached a file with the frame I used for the graphics set and three grey bars showing the progresion of the effect. Just click on them and take a look at what I've done.
Also go to view / grid and make sure show grid and snap to grid are selected. Also go to edit grid and set it to 10 x 10 pixels, if it's not set to 10 x 10 already (makes using the file easier).