I like to leave an 1" of the fabric showing. More or less, it doesn't have to be exact.
Some folks like to have a bit of the fabric visible in addition to the selvage on their creations, some don't.
See the first picture here:
http://www.womenfolk.com/frugal_quil...age_quilts.htm
Here's the mothership for all things selvage related.
http://selvageblog.blogspot.com/
I don't make any of the projects but a friend does. I "try" to remember to cut them for her. It doesn't always work. ;-)