I purchased a charm on a recent trip with the intention of making a pin for a friend. I started by cutting two 7 1/2" squares of fabric and a square of batting. I put them together with spray baste, sandwiching the batting in between the two fabrics. Then I just stitched all over it with various colors of thread. I used variegated thread, metallic thread and polyester thread. I used free-motion stitching and some of the stitches from my machine. Although you can't tell from the picture, I even threaded orange polyester and silver metallic through the same needle and sewed using a pre-programed machine stitch. Here's what it looked like at this point.
Then I added some lime green fun fur (or eyelash yarn). I just laid it down and zig-zag stitched over the top.
Then I divided my big square up into a grid of one inch squares. I sewed along my grid lines and cut it apart. Well, actually I just cut off one end and picked a one inch square from that strip. Then I satin stitched around the edges with lime green thread, sewed the charm on the front and then sewed a pin to the back. Voila!
I've seen this idea called an "inchie." There are probably lots of ways of making inchies and people use them to make jewelry, ornaments, art quilts and more.