The thread and needle are for needle punch. This size is for an embroidery type of finished that is nice and full. I use to do this and am sure I still have both the rug, which is much larger, and the smaller tool and thread, like you are showing. It punches through the back side of your pattern and leave a perfect loop on the other side. There is a latex finish to lock the thread on the back side that is used for rugs and can be used on pieces of the smaller embroidery sizes.