(1) Wool is animal hair made into fabric, and then worn by humans, who have no decent fur of their own, but who think being fuzzy every now and then is still a pretty nifty idea.
(2) Wool is also hair fibers, including those of the Cashmere or Angora goat, the specialty hair of the camel, alpaca, llama, vicuña, Patagonian hairy lizard-rat, sheep-dog, bushy squirrel, kinky-maned wart hog, or Shetland carrot (for vegans).
The process of converting wool (the fuzzy stuff) into wool (the same fuzzy stuff but with sleeves) is like this:
First it is removed, or liberated from the animal, preferably when said animal is preoccupied with something else like eating, watching TV, or playing checkers, and is thus less likely to bite.
This first-stage result is called fleece.
The next step is to remove foreign matter like dirt, bug parts, dead skin, feces, sweat residue, extraneous vegetable matter and such-like from the fleece through a process called scouring. (Sounds kinda painful though, don't it?)
So anyway, after that the fleece is washed, and the washwater is shunted over to the company cafeteria where they make a nutritious soup from it. (And cheap too. Nutritious and cheap, and sometimes a little stinky.)
The fleece or wool (as we should now call it) is then carded (combed), spun (twisted), and ends up as yarn. (Which is another story in itself, with its own thread, which could be why they call it yarn. Maybe!)
After all that they put the yarn into two equal piles, and bring in a dog to bark at one pile (which becomes the woof), and the other half is slammed in a door to make it slightly bent. (This is the warp, eh?)
Following this step the woof and warp are combined by a complicated, clickety-clackety, dangerous looking device called a loom to make fabric (finally), which is where cloth comes from. (No, the stork did not bring it. Grow up once.)
(3) Wool is a fuzzy fabric, much favored by hikers, that when you put it on makes you feel like a normal animal again, with a pelt and all. Unless you are wearing the vegan version, in which case you feel more like a Scottish carrot salad. (And are advised to avoid areas known to be rabbit-infested.)
How it's done: Pringle of Scotland Animation by David Shrigley.