I love making items by recycling other items. Last year I learned how to make food for my daughter's play kitchen out of old wool sweaters I found at Goodwill. It has become a fun hobby of mine and I have recently branched out to making wool animals for her to play with. Wool felt is amazingly easy to work with, washes well, and looks nicer than synthetic felt.
To make wool felt, you simply wash the sweater on hot. Sometimes the sweaters you can find are already felted by their old owners, probably by mistakenly tossing a wool sweater in the dryer.
I buy "food colored" wool sweaters at Goodwill and sometimes garage sales. Around here, a sweater is $3.38 full price but a lot of times I can find outdated sweaters on sale for $1.69 on half-price day, or a quarter on Mondays.
You can also use wool skirts, blankets, suits, etc, as long as they are 100% wool.
Cut up the sleeves so you don't get a fold mark, it gives more "fabric" that way.
Wash like colors on HOT with regular detergent or sometimes I use blue Dawn.
Rinse until there are no more suds in your washer.
Dry on hot, cleaning out the lint trap often.
I use the cuffs and hems as stuffing for my items. I like to use the blanket stitch (with cotton embroidery floss) to sew the wool.
Here is an example, and I will be posting everything I made with pictures later.