Wool becomes available at level 4. You can collect it from sheep - just make sure you feed them with animal feed. Remember, animal feed can be produced at the Mill.
You will need wool for many things including on Home Island to upgrade the House, Storehouse, Food and Wood Storages, Dinner Table, Sawmill, Ceramics Workshop, Mill, Workbench, Smelter, Dyehouse, Hammock, and Swing.
It will also come in handy on Archipelago Islands for various tasks.Wool is also useful for crafting many items including felt at the Loom, and colored wool at the Dyehouse. It will also be needed to fulfil some Dragôn Mysterium requests.
To learn more, check out our Animals section.