I think what you want to do for quilting is "felt" the wool. This involves the washing machine, soap and hot water, followed by the dryer. Google for instructions from multiple websites. I found this one:
http://everythingwool.com/25/how-to-felt-wool-fabric/
You may have to run the wool through the washing/dryer process more than once until it stops shrinking. (Measure a piece before and after to see if it has shrunk.) After that, you can wash and dry as needed without further shrinking.
One of the advantages of felting/fulling wool is that, once done, the edges won't fray.
Edit: Here's a website that talks about fulling wool for quilts:
http://www.quiltmaker.com/articles/f...ing_woven_wool