I came across this super cute idea on flickr...
The little dresses were made by Sue of See Sue Stitch (cutest name evur!) and they're meant for her rag dolls:
Sue's etsy shop is also full of sock monkeys, tea towels, brooches, and cozies of the cutest kind, definitely check it out!
I was browsing through Sue's beautiful blog when I came across this tutorial for gift tags made from fabric scraps:
What a great way to use those little scraps of your favorite fabric that are too small for anything else, but you can't bear to throw away!