Felt is made by a process different than weaving and does not require the added step of spinning the animal fiber into yarn. Indeed, making felt requires no special tools or equipment; fiber, water, and friction is all you need. Now, while the process may seem magical, there is a scientific explanation. You see, animal (and human) hair has scales that lay in the same direction along the length of the hair shaft (think of a pine cone). When multiple strands of hair, such as sheep's wool, are moistened and rubbed against each other, those scales lift up and lock together, bonding the fibers together. The longer the agitation occurs, the more firmly the fibers lock together. Eventually a fabric results from the process if it is continued long enough. This is called "wet" felting.
There is another process called needle felting whereby a barbed needle is used to push and pull wool fibers against each other to bind them together. This process is used by crafters and artists to create dimensional sculptures out of wool and also on an industrial level using multiple needles at one time to create sheets of needle-punched felt in large quantities. The synthetic felt that you see most commonly in fabric and craft stores is made in this fashion.
Fulling is a process similar to felting and occurs when fabric (knitted, crocheted or woven), is washed in hot, soapy water. The fibers bond together in the same fashion as felting, creating a thicker, more dense fabric that is substantially smaller than the original piece. I learned about this process the hard way, years ago, when I washed and dried a medium-sized adult sweater. When I pulled it out of the dryer, it had shrunk down to a child size.
Many crafters purchase wool sweaters from thrift stores and wash them to create their own fulled fabric. If you would like to try this out yourself, toss an all-wool sweater (or other garment) into your washing machine with some soap and hot water and run through a wash cycle, using a cool rinse. You can tell when the fabric has felted sufficiently when you can no longer see individual stitches or threads. To dry the fulled fabric, either lay flat to air-dry or dry in the dryer. If, after drying, it doesn't seem to be felted enough, you can repeat the process. It is a pretty forgiving process, actually.
The process of felting/fulling creates a firm, bonded fabric that does not unravel or fray which makes it popular to use in craft and sewing projects.
Felt Projects includes projects for making booties, brooches, and gift items.
Felt Toys links to instructions for making toys out of felt.
Felt Food links to instructions and patterns for making various food items.
Felt Holiday Items various holiday projects made out of felt.
For more project ideas using felt, check out these books: