I've made several rag quilts, all using flannal. I sew a 1/2 seam and clip to the stitches, being careful to not cut through the seam. Putting it in the dryer after it is washed is what makes the seams fray so nicely. A warning: check your filter on the dryer a few times during drying because you will have a lot of lint.
I also have special scizzors just for rag quilts. They are a bit pricey, but they make the job so much easier.
Good Luck :lol: