craftgrrl | fabric appliques/cut-outs

hi! i'm in the process of making a shirt/tank-top out of a very plain grey fabric... i wanted to spice it up a little bit by adding a black cut-out (or is it called an applique??) of a seahorse on the front. i found a great stencil for one here: http://painting.about.com/library/blpaint/blstencil-seahorse1.htm

anyway, i was wondering if anybody who has done this sort of thing before had any advice/instructions for me? should i just sew it on close to the edge of the fabric or is there a better way of attaching it?? i am pretty new to sewing, so i have yet to master the art of fabric appliques...

any help would be greatly appreciated! :)