I thought this was such a cool idea, I just had to share it:
Click the following link for the full tutorial and photos: The Red Sweater Redo
Before cutting the sweater, first she straight stitches and then zig zag stitches over the fabric to bind the sweater's knitted stitches (similar to how a machine sewn buttonhole is made before cutting open).
Then she further binds the raw edges of the sweater and to give something to hook onto her crocheted edging.
On You tube I found one example of a Scallop Crocheted Edging one can use. There are many more!
Click on the "more info" link on the right side of the video to see the actual crochet sequence she uses in print and that she demonstrates on video.