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After cleaning my chain I would just throw out the old cut up towels I was using to clean with but I bought some rags from the auto supply store and it seems there has to be a way to clean them without putting in the washing machine. I've tried Tide in the sink and it doesn't hardly touch it.
I will clean and re-use rags that I use for cleaning the house, but I just throw out the ones that I use on bicycle and motorcycle chains (and similar things).
Definitely don't put them in the washing machine, they are flammable.
Some laundromats have one machine dedicated to greasy laundry.
Still, remember that wherever you wash the rags, the oils and toxic chemicals go down the drain - either into a public sewer or a private septic system, neither of which is equipped to remove those chemicals from the water.
I just use the heavy duty paper towels, try to reuse them as many times as I can, then pitch them. At least the landfill is supposed to isolate their leachate from the aquifer.
If you have a friend who works at a car or motorcycle shop, maybe you could arrange to get a couple of shop rags a week through their towel service. Although there was a highly publicized decision a couple of years ago that allows towel services to put a lot more effluent into the water system than they need to...