Are you talking applique? That's where you layer fabric over the design and then cut it between color stops after it gets a quick tack down. I guess you could reverse do this which I think is called candlewicking or something like that. It's where it will stitch a single running stitch around and then you cut out the shirt. Then it will run a satin stitch around it to keep it from fraying out.
If you're trying to cut out your own designs and then embroider them together it's pretty hard doing it by hand and you're liable to have a lot of mistakes getting it all lined up. There is a way you can send embroidery files to stahl's and they will waterjet cut fabric and then you can use that same file to make your appliques with to keep you from having to cut the fabric. I did this with some bags and it worked incredibly well.