Felting is done by a chemical process in industry. It is also sometimes done with barbed needles, which grab individual fibers and drag them against their neighbors, thereby binding them.
Historically, the felting process used mercury nitrate. Over time, exposure to mercury could lead to dementia. Hence the expression, "Mad as a hatter".
Felting is an ancient form of wool processing, the earliest examples dating to Neolithic times. It is still practiced by nomadic peoples in Asia, where rugs, tents and clothing are regularly made.
See also felt.