I would think that the idea is that you make a house block and the fabric you were given would be cut up and used in that block.
When I have been in block challenges, we are given the specific size that the block must be. Be sure you know whether that is before it is stitched into the quilt, or the unfinished size. Usually we are given more than one piece of fabric, so that all the blocks will coordinate ... even though we each add our own fabrics to the mix. Sometimes we are told which fabric is to be in the background.
You will find that a challenge like this is a good one to help you stretch your ideas and abilities. Don't stress too much about it, and do what you are comfortable. You'll get lots of ideas when you see what the others do, so you are better prepared for the next time.
While not your subject, this might help you understand how a challenge like this might come together .... The following pictures are for a challenge I was in at our Fair this past weekend. We were given three fabrics, and allowed to add up to 3 (I only added one). The theme of each block was to represent the Fair's 2013 theme, "Friendship Grows at the Fall Fair". Blocks were to be 12-1/2" unfinished. The blocks will be assembled into quilt(s) and cushion(s) to be used in a fundraising raffle this next year.
Here's some pics of the supplied fabric, my block, and the assortment of ones turned in. Mine placed 3rd. (I just wish they would have had a design wall, to show the blocks nicely, instead of pinning them onto a sheet and hanging them ... they look kind of wilty!)
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