Wool Cloth

A cheap, soft cloth made from the wool of sheep and similar creatures.

Source
Wool Cloth can be found as a drop from any number of low to mid-level humanoids. Prior to Patch 3.2 it could also be obtained from skinning sheep.

Wool Cloth as an ingredient
Wool Cloth is used in the following recipes:

Blacksmithing

 * Coarse Weightstone
 * Heavy Weightstone

Engineering

 * Bronze Framework
 * Explosive Sheep
 * Ez-Thro Dynamite
 * Heavy Dynamite
 * Small Bronze Bomb
 * Target Dummy
 * Whirring Bronze Gizmo

First Aid

 * Wool Bandage
 * Heavy Wool Bandage

Tailoring

 * Bolt of Woolen Cloth

Wool Cloth as a Quest Item
Wool Cloth is needed for the following quests:


 * Quest:A Donation of Wool


 * Hand in 60 Wool Cloth to a faction quartermaster to gain Reputation

Places to farm
Humanoid mobs between level 15-36 have wool with drop rates from 17-26 in the 2-8 mobs per wool range with a peak at 20-23 of 1-4 mobs per wool.


 * Lvl. 15+: Northern Barrens: Dropped by Razormanes right on the entrance to The Barrens coming from Durotar.
 * Lvl. 15+: Ghostlands: The forest trolls in Zeb'Tala and Zeb'Nowa drop them, along with the Scourge in Deatholme.
 * Lvl. 15+: Hillsbrad Foothills: Near the Dalaran Crater, you can find enough Wool to gain some levels.
 * Lvl. 15-18: Ironband's Excavation Site in Loch Modan has a good drop rate. Say every 3rd mob dropping 1-2 Wool.
 * Lvl. 18-23: Ashenvale Both the ruins near the northwestern border have good drop rates.
 * Lvl. 19-22: Wetlands The camp located just outside the Dun Algaz Tunnel at Map Coordinate (56,74). The Mosshide Gnolls usually drop 1 wool for every 2 or so killed, and respawn very quickly.

At approximately 63,63 is another area with Mosshide Gnolls which is pretty secluded.
 * Lvl. 20-23: This is the main level range where Wool drops off Humanoids (1-4 mobs per wool)
 * The Splinter Fist ogres in Duskwood is loaded with wool and has about double the normal drop rate.
 * Lvl. 21-28: The Stockade is a great place for Alliance to farm wool.
 * Also, the ogres and trolls in Northern Stranglethorn have above average drops.
 * Lvl. 23+-25+: The Riverpaw gnolls in The Stockade drop 1 wool for each 2 mobs in general which is double the normal rate.