Instructions
Use your shears on any sheep to receive wool. The amount of wool varies between two and four pieces.
Obtain the item that corresponds to the particular color you wish to dye the wool. For example, to dye the wool yellow, you must have a dandelion. To dye wool black, you must have the ink sac from a defeated squid.
Press "I" to open your inventory.
Drag one piece of wool and the ingredient that is used to color the wool, such as the ink sac, from the inventory on the bottom of the screen to the crafting grid at the top. This grid is labeled "Crafting."
Drag the dyed wool from the crafting grid to your inventory.
Right-click any location in the game world while holding the dyed wool to place the colored block in that location.