Red Berry Wool is a charming story about a lamb named Lalo and the boy who tends his herd of sheep. Lalo's boy wears a bright red sweater made from the wool of his sheep. Lalo wants a sweater so he can look like the boy, so he sets out to turn his own wool into a sweater by going through the steps that turn wool into a sweater (while the wool is still on him...). It is a very funny and sweet book. Yes, I think you could do the steps with real wool and tie it into this story.
The Quiltmaker's Gift is a story about a quiltmaker who gives her quilts to poor, needy people, and a king who wants one of her quilts. I think my kids loved the artwork the most in this book, which is very colorful and beautiful. It doesn't really say too much about the details of quiltmaking, it is really about the joy of giving. DD and I did try quiltmaking for a project once (with a group that was doing it, so they had some expertise), it was quite challenging... she has a very cute small quilt that came out of it, though.