I felt wool by washing it in hot water, then drying it in the dryer until almost dry. It is amazing how much it shrinks. I like to recycle old clothing, either my own unused for awhile or I go to the thrift stores and buy 100% wool items. This way I get alot of texture in my wool rugs.
Penny rugs are named so, because in the old days, women would use pennies, coins, thread bobbins, etc. to create a pattern for the pieces. Here is a link to a free pattern and instructions how to make it.
http://www.ehow.com/how_2279713_penny-rug.html