This is the site I used to make my first rag quilt. It's a great tutorial and you can print it out.
http://www.lovetosew.com/ragquilt.htm
I used flannel in the middle of my two squares vs. batting, I cut my squares 5" and cut the inside flannel 2" shorter, or 3", that way I had less bulk to trim on the seams but it still fringed nicely. Some people don't even put in a center piece. I'm going to do my next rag quilt using 7" squares.