It is called trapunto. Traditionally the applique was stitched down and a small slit was cut in the backing, a little stuffing was put behind the applique and the slip was hand sewn shut. Nowadays it can be done by stitching the applique to the background, place a piece of batt behind the backing and machine outline stitch around the applique. The extra batt is trimmed away and the the quikt is sandwiched as usual. if you google the term trapunto or check YouTube there should be done more information on the method.