I think of cutwork the opposite to applique. It allows you to cut pieces out of the fabric, before embroidering around the edge with for instance a satin stitch. It is used traditionally on table cloths and napkins for instance - https://www.google.co.uk/search?q=cutwork&tbm=isch&tbo=u&source=univ&sa=X&ved=0CDoQsARqFQoTCP2vvoy15cgCFcc7JgodTWUBeQ&biw=1309&bih=574
The cutting needles sold as part of the current cutwork kit, or those you would need to buy if you have V5 are chiesel shaped. There are 4 of them which cut at 4 different angles and the machine tells you which one to use. If you have several different areas to cut out, you group those areas, and then it uses each cutting needle in turn for the relevant part of each design, so you only have 4 needle changes.
Once the fabric is cut you can then go straight on to embroidering. You can do this technique manually and just stitch a double line stitch around the area to cut out, remove the hoop from the machine, cut out the areas with a small sissors whilst still in the hoop, and then put the hoop back on the machine to do the rest of the embroidery. You don't need the cutwork kit to do this at all.
You could also use this technique for accurately cutting out your shapes for applique, or even papers for English paper piecing. If you don't have the cutting needles you could just stitch a small stitch around the digitized shape through several layers and then cut on that line to get accurate replicated shapes such as for a mobile or similar.
"Life may not be the party we hoped for, but while we're here we should dance". Anon