Applique and hand-stitching

I'm working on reproducing some illustrations from the book, The Wonderful House, by Margaret Wise Brown.  I was going to just do embroidery and have already started on one, but I'm inspired by some of the hand sewing projects this month that used applique, so I'm going to give it a try. 

I read through Elizabeth's post about machine applique  http://sewmamasew.com/blog2/?p=518.  I'm wondering if the technique is the same for hand stitching.  Same products?  I'll be doing some pretty small pieces.  How do you get them to stay in place while you hand stitch around them?  How do you keep the edges from fraying  (not felt, but woven cotton)?!  So many questions--I should probably get a book.  I just want to get started though!  I'd appreciate your tips.

Here is a good link that shows a bunch of different ways to applique by hand. http://www.quilterscache.com/StartQuiltingPages/startquiltingfour.html

I just use a single pin or safety pin through the middle if I'm having trouble getting the piece to stay when I'm getting started. I don't think any treatment is done to the edges in traditional applique because the edges are all turned under. You could use fray check or clear nail polish I suppose but it will stiffen the fabric.

You could also fuse your cotton to a fusible interface and then cut the pieces out. Then satin stitch around the piece without turning the edges if you want a look similar to the machine applique.