Sometimes "raw edge applique" refers to a technique where you would stitch maybe 1/8" to 1/4" in from the edge of the applique to secure it, then leave the actual cut edge to fray with use and washing, kind of like the edges of the blocks on a rag quilt. Is that what you mean? If it's a wall hanging, it wouldn't see much washing, but you can always fray the edges of the letters with a soft toothbrush after they're sewn down, if that's the look you're after.