I prepared by pre-cutting muslin blocks to a standard size (I think about 10 inches square). Make sure you have extras for 'oopsies'.
Fabric paint was created by adding 'fabric medium' to standard acrylic craft paint to make it flexible yet permanent once it was ironed to 'set' it. (I found the 'fabric medium' in the same display as the paint in a local 'big box' craft store.)
Everyone picked a 'favorite color' - even the little ones - and hand-prints were done on paper plates (with wet wipes and paper towels for easy clean-up). I also provided a permanent fabric marker so everyone could 'sign' their block.
Later, I sewed the blocks together with fabric strips between for color, and added an 'iron on' computer generated copy of a wedding picture of my mom and dad to the middle. It was quilted with 'echo quilting' around each hand print.
We did all this at a family gathering, but you could send squares with return postage paid envelopes for family members that are far away (though sending paint might be expensive - maybe 'paint' markers or have them trace their hand with a pen or pencil and fill in later...)