A rag quilt is different then a normal quilt. You sew the squares cross-ways on the backing, then sew the squares together with the wrong sides facing, so you end up with the seams popping up on the good side. The white you see in the seams, is the white flannel backing.
After you've sewn a few rows of squares, you snip the seams with a good pair of (springloaded) scissors every 1/2 or 1/4 inch (1/2-1cm). The smaller the distance between the snip the more ragged your quilt will be.
You can see I've snipped 3 of the 4 seams showing on the photo. After a few washes they'll become more and more ragged & fluffy. Normally you have the rags along the edges as well but I do prefer a proper binding. So I went on the internet again and luckely some shops still sell fabrics from this range. Think I will use the white variaty of the bottom left or top left corner fabric in the photo above. All fabrics are (or have been) available in white, green, pink or red as basic colour. Mmmmmm, decisions, decisions....
And all this when the little princess is asleep to keep it a surprise :-D.