I just made two of these for a family member - totally easy, envelope style felt pillows. There is no pillow form in this cover yet, but you get the idea. The applique was simple too. I printed out a letter in the font I wanted (this pillow is 18 by 18, so the applique is pretty big. I had the letter enlarged at Kinkos) , traced the opposite side and then used that to trace onto fusible web. This gives you an image that is correct on the right side of the felt when you fused it to the back ground. Make sense? Once it's fused in place just machine straight stich around the edges with matching thread.
I used a cool product for this project - soft, lovely felt made from recycled, plastic water bottles. Neat!