I found this tutorial that shows how to piece crazy quilt blocks on a muslin foundation:
https://www.connectingthreads.com/tu...tion__D63.html
You use your machine decorative stitches to cover the seams after the block is finished. After you sew the blocks together, you can add more decorative stitching over those seams if you want. I believe most crazy quilts were constructed without batting and tied at block intersections (with ties on the back side). They were used as decorative furniture pieces and not meant to get the normal use that other types of quilts get, so they didn't need batting for warmth or lots of quilting and ties to keep the layers together.
Edit: Here's a great Craftsy tutorial that shows how to embellish as well as how to construct the blocks:
http://www.craftsy.com/blog/2014/08/...ng-embroidery/