I do alot of applique, mostly hand needleturn, but when I do a machine applique and want to be able to wash it this is how I do it.
I use the monofiliment thread and stitch close to the edge as possible with a very narrow zig-zag, then accent it with blanket stitch. By using the mono thread, you don't see the stitching and it secures the edge well enough to keep the fraying to a minimum.
As for color, it depends on the effect I want, but I do use alot of the variegated threads, like the look.