Steve, I was curious about this soft edge technique and found one of her patterns. This pattern shows leaving 1/8 - 1/4 inch around the applique to allow for the edges to be turned. Here is the link that I referred to:
http://www.jinnybeyer.com/ax_commerce/shp_detail.cfm?productID=0008906D-5654-1269-A60300017F005857&category=00011E82-4E9D-1269-A60300017F005857
This is a very interesting applique design, thanks for sharing! :D