A rag has to be dripping fresh oil for any considerable amount to transfer to a workpiece. This can happen when oil was just added, but a can is usually set aside for a bit for oil to soak in. Paul dumps a whole bottle of 3-in-1 oil onto his rags, but he's not using it right away. Oil soaks in and a rag gets oily, but just a tiny bit, and it stays like this for a very long time.
I also add wax to mine, 'cos wax is a better rust protection than just oil.