Spray some degreaser (whatever cheap engine degreaser you can find in hardware store will be fine), then soak overnight in a strong mix of Joy/Surf dishwashing liquid. Clean by hand the next day, squeezing the residue out of the applicator. I then usually end up throwing them into the washing machine with the rest of my microfibers, just to ensure their cleanliness
Number 1 is how I do it, with a few refinements- basically I do one spray on the towel to "prime", spray on the panel with a sweeping motion, spread and wipe with the towel (I prefer the pink Microtex plush towels for spray wax application), then flip the towel and do a final wipe, to ensure that there are no streaks. No.2 will work, but will be unnecessarily complicated and use more product than needed.