From Webkinz Insider Wiki
What does the Clothing Machine do?
When you place 3 clothing items into the Clothing Machine, it will combine them to make a brand new outfit! (Keep reading for more information on clothing combinations and Patchwork Items! )
How do I use the Clothing Machine?
What kinds of clothes can I put into the Clothing Machine?
Webkinz Newz (an official Ganz site) stated: "The Clothing Machine will only take your common clothes (stuff from the Outlet Shop, or clothing you get on vacation) — special clothing like holiday items or KinzStyle clothing can’t be used with the Clothing Machine." 
Additionally, clothing made from the clothing machine, cannot be put back in to make more clothing.
Note: Some people are stating that they can also put Curio Shop clothing, retired clothing, or other "Special" clothing (like plumpy glasses or wShop Holiday clothing) into the Clothing Machine. Just because the Clothing Machine accepts the item, that doesn't mean it can be used to make new clothes. Since Ganz did not state that those types of clothes could be used, this may be a glitch.
Does the order of items in the machine matter?
The order of the items in the machine does not matter.
Can I use more than one of the same item?
You can only use one of each item. (For example, you can't use 3 of the same shirt, or two clogs and one shirt etc.)
How many different clothes can be made?
When the machine first came out, Webkinz Newz stated "there are a dozen or so other recipes to discover."  The number of items that can be made is expected to be added to over time, just like the food recipes.
Is there a List/Pictures of clothes that can be made in the Clothing Machine?
What are the Patchwork Clothes?/How can I make the Patchwork Hat/Jacket/Pants?
Any incorrect combination of clothing (A combination that does not result in a "Clothing Recipe item" will result in a RANDOM patchwork item (either a hat, jacket, or pants.) You can put the same three items in over and over again and get a different patchwork item each time.
(Note: If you're trying to make patchwork items, you may as well use the three least expensive items, which are the 15kc bows, and the 10kc red belt (unless something on sale is cheaper!) Just keep using those three over and over again until you get what you want!)
How can I find out which clothing combinations people have tried or are working on?
A lot of WI members are working to solve clothing recipes.
- Look through the blue links at the top of the Clothing Machine Patterns forum and find the thread for the item you'd like to make. Within that thread you will find the various combos people have tried.
- See the Solved Clothing Recipes page for a list of Solved Clothing Recipes.