Have you ever gone to switch the laundry from the washer to the dryer only to discover that you accidentally included your favorite wool sweater? And then, were you horrified to discover that it had shrunk to a size more appropriate for a three-year-old?
If so, you have done felting. When animal fibers (that have not been treated to resist felting) are subjected to agitation while washing and sudden changes in temperature, microscopic hooks on the shaft of the fur expand, hook themselves to other hooks, and contract. The result is that the fiber creates a dense mesh that is thicker and smaller than the original fabric. Many needle workers like to take advantage of this process to make highly durable and insulated textiles, such as hats, rugs, and purses.
The trouble with felting is that it is unpredictable. Much of the process is difficult, if not impossible to control. The degree to which a wool has been processed changes how much or how easily it will felt. For example, unprocessed wool can be difficult to felt until all the lanolin has been washed from it. At the same time, brightly colored, light, or bright white wools are often difficult because they have to go through harsh chemical processes to achieve such unnatural colors. Of course, every individual animal will produce slightly different wool that will behave differently (kind of how different people's hair reacts differently to high humidity).
If you want to try felting something, by extra yarn in the same brand, color, and dye lot. Make a large gauge swatch in the same needle and stitch called for by your pattern, and trace it on a piece of paper. Make a note of your gauge (both stitches and rows per inch), needle size, pattern stitch, and number of rows and stitches. Then wash the swatch several times, noting each time how much it shrinks by tracing it again. I find that sometimes, a piece will shrink a little in the wash and a lot in the dryer, so noting how many times the swatch was dried can also be useful.
I will have more on this topic another time. Currently, I am working on a felted watch cap, and have photos of the various stages of the process. I will post those next time.