How do you get the soap to lather well when using a wash cloth? I tried it once but it didn’t work all that well.

It lathers better than soap/hands for me.

Are you supposed to use a new washcloth every time you shower? If yes, how many washcloths do you go through a week and how much does this add to your laundry bulk.

Not I. I change mine weekly. Even if I did daily, they're tiny, so 7 would be about the same mass as a shirt.

If no, aren’t you kind of grossed out by a used, wet, bacteria filled rag being rubbed all over you?

Not anymore than rubbing a used, wet, bacteria filled bar of soap being rubbed all over you. Or used, wet, bacteria filled hands.