Wool is gathered from sheep using shears. It can be spun at a Spinning Wheel to be made into a ball of wool for 2.5 Crafting experience. Wool cannot be obtained through Rams or Penguin Sheep. It can be obtained north of Lumbridge Castle in the sheep pen. In free-to-play, best method of collecting it is by shearing sheep north of Lumbridge, then go to Lumbridge Castle to bank on the 2nd floor[UK]3rd floor[US] of Lumbridge Castle or use an alternative teleport like the ring of dueling to bank faster. The ring of returning can be used to increase the rate if your spawn is in Lumbridge, and is useful if you chose to bank elsewhere.
Alternatively, members can shear sheep behind Watson's house, spin it inside his house, and then bank it at the Hosidius Kitchen for a similar distance.