The embroidery machine can do applique, but I need better scissors to do it well. You do not precut the shape- the machine sews an outline of it, you place your fabric on top of the outline, the machine does another outline, and then you clip the fabric as close to that line as possible. You may be able to see some yellow past the outline stitching- that is because I did not clip enough. After clipping, you put it back into the machine, and it does all the embellishment.
This is an embroidered towel, but even more than that, it is an appliqued towel! The fish is made with super soft Minky fabric.
This was a really cool technique. And if I can ever afford stabilizer, one I see myself using more in the future.
One website I found: PlanetApplique.com has adorable alphabets and designs, so I will probably make some holiday towels as a Christmas present.
I need more thread!