3 hours isn't a lot of time, especially if a beginner wins the auction.
A thought would be make a completed project to display and a kit to use to teach with. Due to the 3 hour time frame your fabric should also be cut, but that won't teach them how to do it.
Maybe use Take 5 and just make 2 blocks for the front/back of the pillow.
You're going to have to explain how to choose fabric, cut, sew, and put together a pillow. I just don't see it happening within a 3 hour window.
Maybe two 3 hour windows giving the winner at the end of the first 3 hour class the kit/instructions on what to do at home. Then the second class teach them how to complete the pillow.