Well, the traditional way is to match the thread to the background fabric if you are hand sewing it on. If you are using a small zigzag, use the patch color. It you are using the iron on raw edge way, you can use the invisable or use accent color and a satin or decorative stitch.
I have been reading a couple books on this very subject the last two days. One is applique for the terrified quilter" and the other is "Applique, the basics and beyond", by Janet Pittman. The last one is my favorite and has tons of nice pictures to help you learn. (It is borrowed from my next door neighbor though) I gotta buy this book!
The point is there is many ways to do the applique. Some ways are for show. Some are for utilitarian for hard use. (as in the case of a baby quilt) The allpeoplequilt site has videos that you can watch on the subject that is very helpful.