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There are two types of true felt, wool felt and fur felt.  Currently “felt” is available in fibers other than wool or fur but technically this fabric is a nonwoven or formed fabric.

Short staple wool fibers are often used for felt but this felt doesn’t have the strength that felt made from longer, higher grades of wool has.  Using fur fibers for felt contributes smoothness and water repellency.

Felt has no warp or filling yarns so sewing with true felt is fairly simple. However, felt does not drape well which necessitates simple patterns or designs.  Felt will not ravel or fray but will tear in a ragged line.  By using steam and moisture, it is possible to form felt into shapes such as hats.

When felting knit, woven fabric or garments choose wool fabric or knits that have not been previously processed.  For example, wool fabric that has been sponged or fulled does not felt as easily if at all.

Detailed instructions on how to felt knits can be found at Knit Picks

http://www.knitpicks.com/images/pdf/handfelting.pdf

You may have accidently felted a wool sweater by washing it in the washing machine and drying it in the dryer.  The resulting sweater may fit a small child but it will never fit you again.  Wool garments that have been shrunk in the washer cannot be fixed.  An old wives tale states that soaking in vinegar will bring the sweater back to its original size but this is false.  Once the wool fibers have interlocked, they cannot be unlocked.

Nonwoven or formed fabrics are made by using a bonding substance to bond various fibers together to form a fabric.