Most of the small ones are made with ok washcloths or cheapie washcloths. We were waiting for beignets once and the girls were making scads of them out of the old cloths so it wasn't taking housekeepers time or expensive cloths.
Those cloths were probably ones ready to get "ragged out" which means they have reached their end of usability. Then they get stripped down and turned into something else that doesn't touch a human body. A towel or washcloth can only go through so many washings and usage before it's recycled into another product.
I kind of get a kick out of people who are so excited to get a towel animal but wipe down their entire room with disinfectant. Do they realize what that towel animal is made of and where those towels or cloths have been?