There are different ways of felting. You can knit with wool and then 'fell' it in hot water (in essense, when you shrink a wool sweater in the washer, it has been felted), you can needle felt it, or you can wet felt it.
Because the raw wool fibers are naturally barbed, when you work them together...especially with hot water, they lock together. When starting with my raw rovings, my piece is 2/3's bigger than the finished project, and at least 4 times thicker. Once the air is removed and the fibers are fulled, you have a sturdy, strong piece of fabric.
Traditional mongolian tribes felt large pieces to construct their yurts, for carpets and many cultures use felt for clothing and especially hats