You can find a vast array of feltable sweaters in your local thrift store, here is a quick guideline for finding the right materials: Mohair, Alpaca, Cashmere, and Wool generally felt well as long as they have not been treated in any way to make them machine washable. (*hint if the tag also says "dry clean only", that's a good sign!)
To felt, place sweater inside out inside of a zippered pillowcase. Fill your washing machine with hot water at the lowest water level possible. You can add a teaspoon of dishwashing soap or Eucalan Wool Wash, and place your bag in the machine. Agitate, checking the progress every few minutes. It will probably take several agitation cycles before the felting is complete. So continue to reset your washing machine to the agitation cycle until the felting is complete. (Don't let your bag run through the spin cycle, which can cause permanent creases.) Lay your sweater on a towel flat to dry.
This is where it gets fun!
Cut your sweater up into the desired shape for your project. I cut the neck of this sweater to make the zippered pouch above.
Inspired by the Sweater stockings I've recently seen in ME's Home Companion, and Alicia Paulson's amazing collection from her boutique Rosy Posy Little Things, I thought I'd try to make some as decorations for our upcoming Christmas Eve party. I started by making a exaggerated paper template from the shape of a sock, to cut the pieces for these Christmas stockings.
Remarkably, I was able to sew these thick pieces together with my humble little sewing machine! But if you think it's too much wear and tear for your own machine, these can still be quickly sewn together by hand using the whip-stitch.
Adding the final touches is always my favorite part. Here I used old mother of pearl buttons that I found at a flea market, embroidery floss, batting that my cocker spaniel had conveniently torn out of one of his stuffed toys, and some left-over felt from another project to make the flowers.
Some other ideas to use as embellishments: rick-rac, sequins, ribbon, old fabric yo-yo's, or whatever your creative mind can dream up!