I create clothes using nuno-felting, in which wool and textile are felted together to form a new fabric. Textiles such as silk, cotton, silk gauze, wool, hemp or linen can be used; I mainly use discarded silk saris and other recycled clothes of silk or cotton.
A couple of pictures of the process:
For an ultrashort description of the process, see here. There are many explanations of nuno-felting available online. For a detailed account of how I do it, see Old Clothes in Disguise.
Two inspiring books I can recommend are:
Inge Bauer: An-Gewand-t felted. A Gallery Book/Felting Impressions, MaroVerlag, Augsburg (2010).
Lizzie Houghton: Felting Fashion, Creative and Inspirational Techniques for feltmakers, Batsford, London (2009).