I used to have to go to Target to get my burp cloths but now I see them available at Joann's and other craft stores. They are sometimes labeled diaper cloths. I don't wash them ahead of time. I like to gift them when they are fresh and new. I always advise the recipient to wash them before use. My boys are 4.5 now and their burp cloths are now used as blankies and have held up very well. This is a great project to use up scraps.
Make a template if you desire. I made mine out of a manila folder. This will help you keep your burp cloths looking uniform.
Iron the fabric over the template to make the sides crisp and easy to sew. Add ribbon if you want. Remove the template.
Then turn your fabric over and pin it to the burp cloth. Sew your fabric to the burp cloth. I use a zig zag stitch but you can play around with various stitches and see what you like. The main idea is to make sure the fabric is secure and there are no loose pieces for baby to get caught on.