The Woolsack is the seat of the Lord Speaker in the House of Lords. It is a large square cushion of wool covered in red cloth and has no arms or back and is stuffed with wool brought from around the Commonwealth. The tradition of the Woolsack dates back to the reign of Edward III when the wool trade was one of the most important parts of the economy. A seat stuffed with wool was therefore a very important symbol of the wealth of the country.
Related information on this subject can be found from the following links.
Lord Speaker homepage
About Parliament: The Lord Speaker