I'm not from Madrid, but I can help you.
If you're searching for craft suppliers there's a great shop called Chopo http://www.artesaniachopo.com/
located near to Puerta del Sol (a popular place to visit as turist), also near is Almacenes Cobián http://www.almacenescobian.es/
where you can find lot of beads, buttons, findings.. I don't know if they sell wool, but, here in Spain it's still a thing about our grannys so is easy to find common wool on "notions store
" i don't know if I'm speaking well,I'm using a dictionary, in spanish they are called mercerías
that kind of tiny shop where you can buy ribbon, thread, buttons and underwear, my friends fromhttp://www.fimoland.com/foro/
recommend Mercería Dos Reales
C/ Melchor Fernández Almagro 56 (Pilar's district)
I hope you speak spanish well, because most of these shops are about personalized service, I mean there are a guy on a check asking you what you want, so it's better if you know exactly what you want and you know how to ask for ^_^
If you're going to another spanish city let me know! I have another advices for you.