Sheep

Sheep are passive mobs that supply wool when shorn or killed and can be dyed with any of the 16 colors before shearing to produce colored wool. Sheep naturally spawn in the following colors: white, black, gray, light gray, brown, and pink.

Uses
Sheep are the easiest source of Wool, which can be obtained by shearing them with Shears or killing them. The downside of killing the sheep instead of shearing them is that you can only get one wool from doing so whereas shearing a sheep can produce 2–4 Wool. Sheep will drop one wool when killed even if they are killed by Fire, Cacti or Wolves. Wool can also be crafted using 4 pieces of String, but it is much less dangerous for the player to shear sheep rather than hunt down Spiders constantly.

A block of white wool can be crafted with a unit of dye to produce colored wool. However, a much more efficient method is to apply the unit of dye directly to an unshorn sheep by right-clicking on a white sheep while holding it, as the dyed sheep can drop 2–4 blocks of colored wool when shorn.

Behavior
Like other passive land mobs, sheep wander around aimlessly, often spawning in flocks of 2–8. They can be heard bleating occasionally, even from some distance away. When they encounter an obstacle, they will often try to jump over it, even if the object is too tall to jump. Sheep can swim and make no attempt to stay out of water; a common sight is several sheep bouncing up and down in the water. A sheep's color has no effect on its behavior. In 1.8 sheep appear to spawn in larger groups.

History
Sheep were first introduced in Survival Test mode. Before leather was added to the game, wool was used to craft leather armor. Each sheep dropped 1–3 white wool when hit (but this did not injure them) and 0 - 2 brown mushroom upon death. In Survival Test sheep would eat grass, turning it into a dirt block. After eating three grass blocks, sheep would regrow their wool. In Indev and Infdev, sheep would only drop 2 blocks of white wool when hit. In an old Indev version, sheep would drop a mix of white, gray or black wool blocks. Sheep then reverted to dropping just 1–3 blocks of white wool when hit in Alpha. As of the first Beta update, sheep began to drop 1–3 blocks of the same color of wool as the sheep when it was hit.

In the Beta 1.2 update, sheep could naturally spawn with black, gray, and light gray wool along with the traditional white. Sheep could also be painted with dye and shorn to obtain colored wool blocks. As of Beta 1.4, brown and pink sheep were added to the naturally appearing colors of sheep. Beta 1.6 changed the recipe for wool from requiring 9 pieces of string to 4. With the inclusion of shears in Beta 1.7, sheep drop 1 block of wool when killed and 2–4 blocks when shears are applied.

Natural (in order of rarity)

 * White was the original color before Beta 1.2.

Trivia

 * In survival test, sheep used to graze and eat grass, turning it to dirt. This can be seen in a early video by Notch of this occurring: http://www.youtube.com/watch?v=2XDxbZjmGq4
 * Sheep are the second mob to spawn with both a separate body and armor file, the first being the pig; the sheep's "armored" state is wooly, while pigs "armored" state is when they are wearing a saddle.
 * Sheep are 1.25 blocks tall, 0.625 blocks wide and 1.4375 blocks long.
 * After being shorn, all sheep (regardless of their original color), will have remnants of white wool color on their head and body.
 * Shorn sheep have a more slender head and exposed ears.
 * If you damage the sheep 4 hits you can get 5 wool blocks by clicking both mouse buttons at the same time, though it requires practice as you have 1/20 of a second between each mouse click.
 * Before the Beta 1.7 update, you didn't need to kill sheep to obtain wool, as hitting them, even with a non-damaging attack such as a fish hook from a Fishing Rod, would cause them to drop the wool. Now you cannot get a sheep to a "shorn" state unless you use Shears.
 * If a sheep spawner is placed via hacking, there will be a black sheep model spinning inside, but it will spawn only the white ones.
 * Sheep were planned to drop meat when killed.
 * According to Notch on Twitter, feeding a sheep with wheat can "tame" them with a picture for proof. The picture shows a huge amount of sheep, with hearts on the top of some of them, and 61 wheats on the bar.
 * In Beta 1.9 Pre-release 2-3, Sheep/Lambs spawned via animal breeding will always be white regardless of their parents color.
 * Sheared sheep can't be turned into Love mode, though they will still follow the player when he is holding Wheat

Future
Jeb may add Mutton (Mutton Chop?) to Minecraft.