I found this blog that shows with pics how to make a wool dryer ball. It looks pretty easy, mostly just winding the ball and then washing it tied inside a pair of tights.
http://goodmama.typepad.com/goodmama/2008/05/make-your-own-wool-dryer-balls.html
People on CD forums swear by them, saying they use these instead of fabric softener and the advantage the wool balls have over the plastic is they are quiet.
They also say they use this pattern and make colored wool balls for their kids to place with.
It says " For the best results, use a yarn that is 100% wool or otherwise is a good felting yarn. Do not use superwash wool. If it says it is machine washable, you don't want it for this project!" so just be careful of that! I'm going to give it a try.
From what I have read people use anywhere from 2 to 10 balls in the dryer at at time. And also clean your lint trap often if you use a wool ball. It's not supposed to be terrible but it can accumulate.