Here's a great resource
for sewing prefolds as well as other types of dipes. I love making mine out of knit fabrics ... I had saved a bunch of dh's old undershirts (I guess for rags) and they made super soft dipes for ds. But then again, I'm a knit freak!
You can buy diaper flannel at Walmart (if you have one up there) and also find quality birdseye weave online at diaper fabric shops. (If I find the links I'll post them.) Personally, I like soft and stretchy, but you can use anything that you want or think would feel good on your babe's bum.
Oh, another idea would be old towels or baby towels ... have fun and post pics!