I have made many rag quilts for my family and I've sold several.
I made mine with 6 1/2" squares of flannel with 6 1/2"square batting. I have also made them with just flannel and no batting. I would sew the squares with an X and then sew the squares together with a 1/2 " seam. If you use batting that is the same size as your square, you will need a walking foot as the seams have 6 layers.
You should also stitch 1/2" around the quilt.
I snipped the seams every 1/4" or so making sure not to snip the stitching.
I also snipped around the quilt.
They are very soft and get more soft the more they are washed.