We took some old rags (clean ofcourse) and cut them up into rectangles (that fold in half to create two squares). We then took some material that I liked and cut it to rectangles about a half an inch to an inch larger than the rag squares (again you could use two squares).
You fold everyhting in half, right sides in and rags on the outside, and sew around three sides (two if you used a folded rectangle).
Turn it right side out, add a hanger, and sew the last side shut (fold edges under).
Finally sew a x though the center of the pot holder and the edges to hold the rags in place.