Trim off all factory edges (selvages) before cutting squares....selvages will shrink differently than the rest of the fabric. I would sew all seams with 1/2" of fabric to the right of the seam as you are sewing. After all squares are sewn, then clip the edges...from the edge of the fabric just up to the seam, being very careful not to snip into the seam. I am guessing you would clip about every 1/4".
Here is a link to a tutorial here on the board showing how to make a rag quilt.....it will help explain things
http://www.quiltingboard.com/tutoria...l-t106335.html
Have fun and feel free to ask any more questions that pop up!