One of the most popular charity craft items amongst my hospital contacts, and easiest to make, is a simple receiving blanket. This can be a squarish piece of soft fabric, like flannel, with the raw edges finished off. The finished edge can be serged, hemmed (zig-zagged or straight-stitched), or decorated with embroidery stitches. Finished sizes can vary widely, depending on the desires of the institution requesting the blanket. Most of the blankets I've made range from 24" square to 36" square.
Along with receiving blankets, sheets are very popular with nurses who like to dress up the babies' beds. I would use discretion when choosing the fabric, but "cute" comes to mind more often than not. Ask your hospital contact point blank what size they prefer, as most are more than willing to share this information or provide samples.
Here is a photo showing some simple receiving blankets. Use caution when choosing flannel, and do not invest in shabby flannel as it will not hold up in the wash.
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