Like we said, wool can soak up a lot of moisture without feeling wet. This makes wool a hygroscopic insulator. The crimp in the wool fiber forces each strand to butt against each other, as opposed to lining up side by side or laying down flat together. This keeps the tiny air pockets intact, acting as little insulators -- the key to being able to keep you both warm and cool. Air has the ability to move heat by convection -- in other words, by moving and circulating. Through convection, air can transport heat from one place to another. When air is contained in very small pockets, it can't circulate easily, so heat is retained. Same goes for cold. Think Styrofoam cooler -- the Styrofoam's tiny pockets of air act as an insulator for heat or cold (depending on what's inside the cooler). The same concept goes for wool.
There's also some science at work here. Wool fibers are made up of cortical cells, and these cells are wrapped in cuticle. This scaly outer layer is then covered by yet another layer, the epicuticle -- a filmy skin that helps to repel moisture. What's more, the epicuticle also helps out in high humidity because it has tiny pores that draw in the moisture vapor to the center of the fiber where it's absorbed by a chemical process. The hydrogen bond of water, H2O, is actually broken, creating a chemical reaction with the wool fiber molecules to generate heat when it has taken on a lot of moisture. But because the air pockets allow moisture to evaporate from your skin, you won't overheat when you sweat.
The combination of the fiber's natural crimp and the chemical and physical processes that take place when wool meets moisture make it the best all-season natural insulator on Earth. It actually absorbs water from both your skin and the atmosphere around you to create a dry and warm environment where it counts -- against your body. So the next time you pass a herd of sheep standing around in the pouring rain looking dopey, remember the complexity of their protective coat.