The reason you cut the batting smaller is this: the batting will shred if it's even with the other squares. Ask me how I know! Yes, the 1st raggy quilt I made had homespun in front, batting inside and flannel on back. I made all 3 squares the same size. This was a present for my DD's BF; she wondered why he kept saying there was "junk" everywhere, lol.
You have got to do an X or some type of sewing on the sandwich if you do batting. Otherwise, it will bunch up. If you PM me, I'll send you more detailed info.
Batting is not my preferred choice; I usually do flannel. Of course, we live in southeast Texas, so don't need the heaviness of the batting. If I'm selling a raggy quilt, I'm always glad to add the batting.