Having a home with 3 children there is always room for rags.  We have retired the paper towels and napkins and the majority of our paper TP use.  Washable fibers find many purposes here when paper is cut out.  That said here is an idea for you.

Having a daughter with asthma and a seizure disorder we have landed in the hospital many times over 12 years.  She has often times come home wrapped up in a flannel hosptial blanket.  Having the appropriate equipment in house makes it very easy to cut these up in the requested 10 x 10" size and serge them off for use at our neighboring Wild Life rescue facility.  http://www.geocities.com/wildlifeworksinc/home.html is a non-profit, volunteer based facility that recovers & rehabs the displaced and injured wild animals being impacted by human growth and development.  E-a-poo's, continues to support this facility by way of cloth, reducing the need for the request for paper products, and providing them with cloth to line the nest with for the baby animals.  Their initial request was for flannel receiving blankets, I just spun it off with a little creativity.  Contacting a local facilty that may be able to use rags or construct them into something useful may be an option.  Thumbs up for re-using fiber and the resources used to make them again. :)