Some clothing cannot be turned into rags (leather items, boots).
Amount of rags yield depends on item inventory size and clothing equipment type (for example, hats: 1 rag, torso: 2-3 rags, legs: 1-2 rags).
Equipment such as backpacks, vests/rigs, helmets, belts is excluded for several reasons: balancing and valuables protection. In almost all cases, you don't want to tear it apart.
Mod is written with compatibility in mind, so it should work even with modded and new items. If anything, make sure this mod priority is higher than another mod in question. When using with Oldman's Immersive Overhaul mod, make sure "Clothes to Rags" loads BEFORE it.