Well, Sue is right in that 3 inches is all that you use, but it's much easier to work with a longer tail to start and then cut it if you are using a needle like I do. To weave in a 3 inch tail you can use a crochet hook if it's easier.
As for yarn.. it's all personal preference and depends on the project to a certain extent. I don't like to handwash so I rarely use 100% wool unless it's superwash. If you want to felt something you want wool or animal fiber that is NOT superwash though. Baby and child clothing is best worked with a soft washable yarn so I use a lot of acrylic or acrylic blends for that.