I have had several people over the last couple of months ask how I do the quilted letters that I often put on the back of my quilts. I have typed the process a couple times to different people into emails and Facebook messages so here is how I do my appliqué letters for anyone else that is interested in them. You need some very inexpensive supplies first: Heat n' Bond Lite (this can be bought from JoAnn Fabrics), a chunky font that you can easily trace (I always use smiley monster) and the fabrics that you want to become letters (cottons are a must).
First print off your letters at the desired size and cut them out. Then trace the letters upside down onto the smooth side of the Heat n' Bond. I then cut out a square around each letter, but not the letter itself. I then will iron (using no steam) the bumpy side of the heat n bond to the wrong side of the fabric. Cut out your letters and you are good to go!
Your letters will fray a little, but not much and I really enjoy the slightly worn look. I have used this technique on a number of quilts and on a turkey onesie of Charlottes this past Thanksgiving. Charlottes baby blanket has been washed MANY times and the letters are still looking the same as they did one year ago (has it really been one year already!?)
Hope this helps. I love to appliqué and seem to use it on almost everything I make!