Wool is perhaps the most indispensable of the natural fibres: warm and durable, it takes dyes readily, and through various finishing methods can be rendered almost entirely weatherproof. Its versatility has made it one of the most enduringly popular fibres known to man.
Some of the oldest garments ever unearthed were made of wool, from a string skirt in Denmark dated to 1400 BC to the woven cloaks found with the bodies of bog people in northern Germany. As a general-purpose fibre millennia before the advent of synthetics, wool was woven, knitted, nalbinded, and otherwise manipulated into everything from fine cloth for blouses to coarse sailcloth for Viking ships destined to cross the Atlantic.
It is likely that sheep were domesticated and bred specifically for their fleece, to be sheared, spun, and worked into cloth more than ten thousand years ago, somewhere in northern Europe. The spinning wheel was thousands of years away from invention; these primitive peoples spun fleece into yarn with their hands alone, and later with drop spindles. Weaving techniques with simple horizontal and vertical looms -- hardly more than frames, only sporadically equipped with heddles -- were sufficiently advanced that even the earliest woollen fabrics unearthed were skilfully made.
Historically, wool has been of greatest importance in Great Britain. In 55 BC, when the Romans arrived in the British Isles, a fast-growing wool industry was already well on its way to prosperity. This was encouraged by the conquerors, who cherished British woollen cloth as "so fine it was comparable with a spider's web". This was high praise indeed for artisans whose work predated the spinning wheel by nearly a thousand years, and it would set the stage for the importance that the wool industry would play in Britain's economy over the course of the centuries to follow.
Saxon invasions of Britain in the fifth century decimated the wool industry; it recovered soon enough, however, and by the eighth century British woollens were highly sought after on the Continent. The industry expanded further with the arrival of the Normans in 1066, and by the twelfth century wool was Britain's single most profitable export; raw wool was most popular, followed closely by woven cloth, the production of which was sped up considerably with the introduction of the spinning wheel.
Exports and export taxes were a considerable source of revenue for the English kings; these taxes were levied at the Staple, a market established for that very purpose. Guilds of spinners and weavers were organised to ensure that a high standard of quality was maintained. The prosperity of the industry was so great that it was valued at a king's ransom in 1192: King Richard the Lionhearted, held prisoner in Austria after a crusade, was returned safely in exchange for the entire (not inconsiderable) wool output of three monasteries.
The industry became more and more prosperous through the thirteenth century until political unrest caused it to decline. To salvage it, in 1331 King Edward III encouraged a number of Flemish weavers and tapestry makers to relocate to England. This worked for a time -- and would play a significant role in the eventual regrowth of the industry -- but the bubonic plagues which swept Europe and laid waste to the populations had a significant impact on the wool industry, as up to three-quarters of the populations of wool-based towns were killed.
With the sudden lack of skilled workers to process the fibre, raw wool exports again became an economic staple. The influence of the Flemish settlers came to the forefront in the weaving of worsted cloth, for which England became famous by the end of the fifteenth century and even still today; the wool industry saw no more major setbacks and grew steadily until by 1700 wool, both raw and woven into cloth, comprised a full two-thirds of all British export products.
Despite some protests -- particularly the Luddite riots of 1812 -- the Industrial Revolution mechanised all aspects of the British wool industry, from spinning to weaving and finishing. The relaxation of wool-related laws saw manufacturing centres spring up everywhere; mills in Scotland became famed for their tweeds, while the West Country became renowned for finely-woven woollen carpets.
Today there are still some thirty million sheep in the United Kingdom, though the wool industry is not nearly so important now as it was in past. Elsewhere it plays a greater role, particularly in New Zealand, which is famous in a niche sort of way for its fine quality Merino wool.
The sheer diversity of wool fibres is evidence of thousands upon thousands of years of selective breeding. The distinctive structure of individual fibres may also reflect these refinements; each fibre is hollow -- making it a remarkably efficient insulator -- and covered in tiny scales, which when agitated lock together to form a thick felted fabric nearly impervious to rain, wind, and even sound. As a collective, in locks, wool fibres range from very short and crimped with extremely fine diameter to long, thick, and relatively straight.
Generally speaking, fibres are classed based on these traits into the categories of fine wool, longwool, down type wool, and that from double-coated sheep, which incorporates some of each. There are hundreds of different breeds of sheep, and within that many more cross-breeds; fibre characteristics are mostly related to the breed of sheep from which it has been sheared. Lambswool from any breed tends to be softer than fleece from adult sheep.
As their name suggests, fine wools are the softest and most elastic of all wools. Softness is often related to the diameter of the fibre; thicker fibres tend to be more coarse, and fine wools are at the opposite end of the spectrum. The elasticity comes from the amount of crimp or curl to the fibre. These are not known for their lustre, but are prized for their extremely soft hand; the softest of them can be knitted into garments suitable for wearing next to the skin, which may come as a surprise to those conditioned to think of wool as itchy and exclusively for outerwear. Merino wool is the best-known of the fine wools; other examples are Polwarth, Rambouillet, and Corriedale.
Longwools are not nearly as soft as the fine wools, but their lustre and tensile strength make them valuable for different reasons. They have less crimp than fine wools, which gives yarn spun from them magnificent drape, much like silk. Cross-breeding has resulted in some types of longwool which have a soft enough hand that they can still be worn next to the skin; most notable here is Blue-Faced Leicester. Wenseleydale wool is the most lustrous longwool that I have encountered. Other longwools are Romney (which breed contains such a wild variety of staple lengths and degrees of crimp that it can sometimes be classed as a fine wool as well), Border Leicester, and Lincoln.
Down wools are soft and the fibres are short, leaving them with little lustre but a great deal of loft. Yarns labelled as being spun specifically from down-coated sheep are rare; most commonly, down wools are incorporated into blends to add loft. Some examples of down-coated breeds are Cheviot, Suffolk, and Hampshire.
Double-coated sheep have a soft and downy undercoat, providing insulation, and a longer and shaggier outercoat, which sheds rain and snow and protects them from inclement weather. Most double-coated breeds are associated with specific cultures; the Icelandic sheep, for example, whose fleece is most often left minimally processed, softly spun into two-ply yarns and sold as "Lopi", or the Norwegian Spelsau, the wool from which is used mostly for tapestry and rug yarns. The Navajo Churro, which was introduced to North America by the Spanish in the 1500s, has fleece similar to Icelandic sheep, processed in much the same way.
Wool from Shetland sheep is different again. This hardy breed was cultivated by islanders looking for a variety of colours; upwards of twenty shades of fleece now exist, after many centuries of selective breeding. Shetland fleece ranges from very fine and soft -- this is spun into cobweb-weight yarn for the making of lace shawls -- to the less fine, traditionally spun into heavier worsted yarns for sweaters. Much Shetland wool for sale in stores (and rest assured that if it is, it will be labelled as such) still comes from the Shetland Islands; however, an increasing number of herds in North America mean that this particular fibre has become more accessible to North American fibre artists in recent years.
Jacob sheep are another oddity. Each animal has a fleece with up to six colours in it; sometimes these are separated out and spun individually, but more often they are left as a collective and spun into marled yarns. The fibres range from as soft as the finest of the fine wools to long and coarse like the outercoat of a double-coated sheep.
Most wools for sale in shops aren't labelled as being from a specific breed. They tend to be blends of any number of different ones, and going by feel is paramount. Breed-specific yarns are more difficult to come by; most commonly found is Lopi, from Icelandic sheep, followed by Merino, and increasingly Shetland wool.
Though wool production is no longer crucial to most countries' economic success, it is by no means a dying trade; and a seeming resurgence in popularity of the fibre arts will likely keep it that way.
Sources:
Swett, Sarah. "The Wonders of Wool". Interweave Knits Magazine, Winter 2000/2001.
"The Middle Ages: English customs on exported wool 1275". BBC. http://www.bbc.co.uk/history/timelines/britain/mid_eng_customs.shtml
Growing wool. http://www.sheepcentre.co.uk/wool2.html
Williamite Wars: Wool and linen 1699 - 1710. BBC. http://www.bbc.co.uk/history/timelines/ni/wool_linen.shtml
Wool in history. http://www.sheepcentre.co.uk/wool1.html
This is probably incomplete; if you've got any additions or ideas for amendments, by all means let me know. | 
