I JUST finished making one of these. And I too was confused by the directions. Consequently I made the base 1 inch smaller than it was supposed to be. The applique is the part that is sewn on the top - to cover the X you cut in the fabric under it so you can turn the base. The stiff interfacing/Bosil is in the base. When I did the first one I cut the base the size of the applique hence my 'smaller' fold and stitch. I also made the fold and stitch blossom; that one I did correctly. The lines that you mark when finished are your sewing guidelines.
Fiery Phoenix does one extra step; she also does a topstitch on the entire thing on the back side. Like the front seams that used to be on double knit pants eons ago. Then she turns it over and sews the sections together on the marked lines. I would think sewing through all that fabric on the back on the fold would be difficult.
Good luck.