I use my scraps for "sew and flip" quilts. The center of each block is a focus fabric, and I choose coordinating colors of strips from my scrap bag to fill out the blocks. Another style that I make is to sew strips diagonally on a foundation piece usually using strips from the same fabric for the center strip and filling out with scraps.
I really enjoy using scraps!
As far as prepping the fabric goes, my scraps have been pre-washed before using them and treated with Retayne if necessary.