Cut it out inside the line. Try it in the back of your case and trim as necessary.
If you want to be fancy, cut the camera hole in the matching shape as in the the case. For this time, I just cut a rectangle in the corner because when I tried cutting such a small oval it was making my fabric fray like crazy. When I use paper or a thinner fabric as the backing I will do an oval.
Now just put the fabric/paper in the clear case and add in your iPhone.
Did I say I'd change it weekly? Apparently I meant every few hours. Here's the new one I did.
Printed on craft paper with little embroidered details. Can you recognize the inspiration?