Wool is used in outdoor gear as an insulator, usually found in lightweight baselayer garments. Merino is the most popular type of wool used in outdoor clothing. Lanolin, a waxy substance secreted by wool-bearing animals, gives Wool a special property; if you're working hard on the hills, building up a sweat and wearing wool, when the wool garment dries there's almost no odour left behind from your sweat.
As wool is a natural product, coming straight off a sheep's back, it's biodegradeable so if you were to bury it in the ground it would eventually compost. So environmentally it's pretty good; all you have to consider is the effect that livestock have in terms of land use, CO2 production and the processing & manufacturing methods associated with the garment you have or are considering purchasing.
The main ethical issue with wool is how the Sheep are treated and how they get to live their lives.
These are some of the main issues that are associated with farming sheep. You may want to do your own research to see what the individual brands are saying about where and how their wool is sourced.