I just remembered another traditional Swedish craft called “klackmatta” – it translates into “shoe heel rug” – and which is made with a similar method to your rug here except there is no folding. Instead you use scraps of felted wool fabric of the kind traditionally used for outer garments. These fabriscs are often black or gray. The scraps are cut into the shape of shoe heels – hence the name, embroidered with brightly coloured wool yarn, and sewn slightly overlapping onto a piece of fabric the size you want your rug. The method is used for all kinds of rugs – for the floor, for tapestries, for chair cushions, bed throws, etc. The center is often covered with a bit of fur – usually sheep.

Look up the word on an image search engine – I think you will like them!

In Sweden we have something similar called “fattigmansspets”, which traditionally is used in places where you otherwise would put lace – like hems and cuffs on garments, for instance. The word translates to “poor man’s lace”, but I know there is something else called this in English, so it must have another name!

The fabric is cut into little squares that are folded twice – once in each direction – and ironed, and then you tuck one square into the last fold of the next and stitch diagonally (if you look up the word on a search engine, you’ll see what I mean), making sure the folds all go in the same direction. The cut edges will then point in one direction – these will be hidden under another row or inside the garment – and the folded edges in the other, making neat little triangles.

I never imagined I could use it like it’s been used in this rug!

http://craftingcreatures.wordpress.com/2010/04/25/rag-rug-tutorial/#more-1783

It gives directions on how to make a rug very similar to this one that you’re trying to figure out. Perhaps by viewing this link, you’ll have a jumpstart on how to make this beautiful rug. I hope it helps!!