I use a router with a 1" or 7/8ths" bit. You can use a smaller bit if need be, just make two passes, it can be tricky setting your fence to get the width just right for your box. A router can be dangerous if you go the wrong way, always cut against the bit. Be sure to use a push stick of some type. I make my own from scrap, an L-shaped piece with a handle, this keeps fingers away from the bit. You don't need to go very deep with the dado, 3/32"-1/8" at the most.
You could also use a dado blade on a tablesaw, personally I prefer the router since I don't have a dado blade