The only thing we use paper towels for in my house is draining bacon. We don't use napkins much, but if we're eating something messy, we'll grab a clean dish towel. I've got about two drawers of varying kinds of rags/towels that have been acquired slowly, a few at a time. I have some micro fiber towels for general cleaning, picked those up cheap at TJ max. Same for the bunches of washcloths I use for dishwashing. I don't dry, but lay things out to drip dry on the big dishcloths. The shabby, old stained ones are kept around for cleaning up cat vomit and other gross messes. If I was cleaning up a sticky sharp mess like a broken molasses bottle, I would just throw the towel away, knowing that it had already served me many years.
I have a washer/dryer now, but we have done cloth only while limited to a laundromat. Like someone else mentioned, they just go in with the bath towels. I like to wash both hot and tumble dry. This is the only thing I wash in hot though.