Wool

Cloth is a set of 16 blocks added in update 0.0.20a. All 16 blocks are identical except for the different colors (and three shades of gray). Each block has 1 texture that is put onto all sides of the block. Cloth can easily be broken in Survival modes without any tools and is flammable. Cloth is a weak block and will not protect against explosions.

Another use of wool to players, if interested, is to build a shrine to "Thomas the Sheep",which is a common Minecraft meme on the forums. The link to the thread that started it is below, which contains instructions on how to make a shrine. http://www.minecraftforum.net/viewtopic.php?f=35&t=18455

In Creative mode, all colors of cloth are available for use. Cloth is often used for pixel art (the reason it was added in the first place) and to make colorful buildings and structures. Another common use is to make rainbows, sometimes in the form of towers or carpeting.

In Survival mode, only white cloth could be normally obtained. When hitting a Sheep, a few cloth blocks would drop. All other cloth acted the same if obtained. All colors of cloth acted the same in Indev as well. In Infdev and Alpha, colored cloth will crash the game, due to the fact that the blocks were removed from the game modes. Cloth can be obtained from sheep or crafted by using 9 string in a 3x3 square. Even though cloth can be obtained much easier with the former method, string has no use except for making a Bow, which will never need to be replaced from breaking. Cloth can be used as a building material and to make Paintings.

Trivia

 * All cloth blocks, except for the white cloth appearing in Alpha mode, are being removed from the game. Notch is adding a function that will change the color of a block, which will effectively replace the need for many blocks for different colors.
 * Before actual Leather was added, cloth was used to craft Leather Armor.