You layer the background fabric on the bottom and the design fabric on the top. You trace the design on the top fabric using a light box or your own window with the light showing through. Then you cut on the design lines as you do the applique. It sounds harder than it is.
My favorite of all their 2 Fabric Applique Quilts is the Herd of Turtles, which I'm working on right now.
The applique is done and the quilting is under way.