Felt is one of the oldest man-made fabrics. It's made when animal fibers, like wool, are joined together through friction. Nomadic Mongolians still use felt to line the frames of their yurts – check out this cool video that shows their traditional felt-making methods.
Today there are many brands of commercially-processed felt available for purchase – but it's also easy to make your own using unspun wool roving, or yarn that's been knitted. This gives you more control over the pattern and thickness of the felt.
There are two basic types of felting: wet felting, which uses very hot water, and dry felting, which uses thin, barbed needles to bind the wool fibers together.