I basically iron a square of fusible web (such as Wonder-Under or Heat n Bond) to the back of a scrap of fabric, draw a simple shape on the backing paper of the web (I used an extra-large cookie cutter as a template for the heart shape), then cut it out. Fuse the shape to one end of a pre-folded cloth diaper and use your sewing machine (with a heavy-duty or denim needle) to make a tight zig-zag stitch all around the edge of the applique (like a satin-stitch). You could also sew a blanket stitch by hand. These are quick to whip up and make a nice, handmade addition to a gift of purchased baby items.
I have also used this technique to embellish kitchen towels: