You can do it either way. If you cut it up do overcast the edges to stop the raveling. If you toss it in prior to cutting it will look like a mess when you pull it out , but your going to cut it up any way so ... no big deal. If its a high end suit there could be some underfacing material that might be a bit of a mess.
To felt it .. toss in hot water and agitate. The more you agitate the more it will felt.