Here's a quick tutorial using Embroidery Boutique's Ho Ho Ho design to demonstrate how I do machine applique. Sorry for the bad pics!
Step 1: Hoop stabilizer and stitch all placement stitches. In most designs you will need to skip through the tack down stitches and/or satin stitches to get to the next placement stitch.
Step 2: Unhoop stabilizer and cut touching design pieces apart. If pieces don't touch I just spray fabric with spray-n-bond, stick to stabilizer and cut.
Step 3: Spray fabric pieces with spray-n-bond, stick to stabilizer pieces and cut the pieces out. Be sure to cut them just a tad bigger than the stitching line to ensure they get stitched during tack down. And don't forget to remove stabilizer from fabric and store it to use next time.
Step 4: Stitch placement stitches on item being made. This time go in order. Placement, add fabric, tack down, satin. If you use heat-n-bond light, iron after tack down.
Step 5: All pieces are tacked down and you're ready for satin stitches! You can see in the picture how my pieces are hanging just outside the stitching. This design had wide satin stitches and covered everything perfectly. If there is excessive over hang I trim it before satin stitches.
Ta Da! The finished shirt!
I've always used this method and love it because I can keep the design template I stitched on stabilizer and use it time and time again for the same design. It really speeds up the process because I can have one shirt stitching and all the pieces ready for the next one and do not have to stop to trim in the middle of stitching the design. I keep all of my designs in craft bags labeled with the design name and size. Hope this helps!
Ho Ho Ho! Merry Christmas!