Wool

Wool is a block obtained from sheep that can be dyed 16 different colors. Wool blocks are weak, flammable, and do not offer much resistance against explosions.

As of the Beta 1.2 update, white, light gray, gray, and black wool can be obtained naturally by shearing sheep, and as of the 1.4 patch, brown and pink sheep can spawn naturally throughout the world. Sheep have a 82.8% to be white, 5% chance to be black, 5% chance to be gray, 5% chance to be light gray, 3% chance to be brown, and a 0.2% chance to be pink. Pink is the rarest wool color naturally. White wool can also be created by combining 4 pieces of string together, which can be found in dungeons or obtained by killing Spiders or breaking cobwebs. Killing sheep will yield 1 wool, while shearing will yield 1-3 wool and keep the creature alive for future shearing. With three wool and three wooden planks, you can make a bed.

History
Wool was added for the creation of paintings, carpeting, colorful structures, and in-game pixel art. Wool is also a suitable material for docks, as wool blocks will stop boats and absorb some impact from the collisions in a manner similar to soul sand.

In Creative Classic mode, wool blocks were known as cloth blocks that came in a set of 16 colors, although the palette was slightly different from the one available in Beta. Three shades of gray were added in Classic 0.0.20a.

Except for white cloth, colored cloth blocks were unobtainable during Classic's Survival Test and Infdev unless they were pre-placed into the map file. They were completely removed from the code in Infdev. Placing these blocks on the map would cause the game client to crash, since the blocks no longer existed.

When colored wool was introduced again in Beta 1.2, cloth blocks were renamed wool blocks.

Colored Wool
Making wool from string is not recommended as string is much harder to obtain without the aid of an efficient mob trap. The new string to wool recipe is 4 string in a 2x2 square. The old one was 3x3.

Colored wool is made from dye and any color wool. The position of the wool and dye in the crafting square doesn't matter.

Efficiency
By right clicking on a sheep with dye, the sheep will be colored in the color of the dye. When sheared, they drop 1-3 blocks of the colored wool, allowing more than crafting colored wool or killing the dyed sheep, which gives only 1 unit.