You can do a lot of decorative effects with hand stitching to created the folds or ruffles. It's been several months but I was watching a sewing show on PBS where they showed some of the techniques. The lady doing the demo sewed about a 6x6 square with what looked like a basket weave pattern on the front.
It may have been "It's Sew Easy" that it was on.
I think you would want to make your pieces oversize, sew your other pieces around the piece, then trim the excess off. If you cut to size before sewing the ruffled piece on, the stitches holding the ruffles may come undone and you would lose the effect.
Sorry, I don't remember much beyond the fact that it can be done.
BuzzinBumble, great signature.
Rodney