
Penny rug felting involves using pieces of wool felt hand-sewn in a decorative pattern using a blanket stitch or other embroidered stitch to create a miniature rug that is hung as a decoration or used as a table-mat.
Needle felting is similar to penny rug felting only it also includes using roving that is punched into the wool felt to create part of the decoration. Decorative pieces created of this nature are usually primitive in design and created for a primitive decor.
For needle felting you take a piece of wool felt and place it over a needle felt mat. Then you take a bunch of the roving and using the needle felt tool you keep punching the roving into the wool felt piece until you get the desired effect that you want.

Wool penny rugs started out as coin shaped decorations stitched together from scraps of fabric.
According to Wikipedia.com: In the 1800's, starting around the time of the Civil War, thrifty homemakers would use scraps of wool or felted wool from old clothing, blankets and hats to create designs for mats or rugs. Using coins as templates, they created circles and each piece was then stitched in blanket stitch fashion. (Thus, the name "penny" rug). Sometimes, the mats or rugs were backed with old burlap bags or feed sacks. Sometimes a penny was stitched inside the mat to make it lie flat.
Penny rugs and needle felted wool decorations are very popular with the "primitive" home decorating community. They are no longer rugs for the floors but have developed into all sorts of decorations for ones home.