break a tree and then open your inventory (i), put them in one of the bottom of where you have to craft the items, you should get a wooden plank, put the wooden plank in all of the crafting place,...
Dye can be used with regular (white) Wool to create coloured wool. It can also be used on sheep, to dye them that colour. Whenever you shear that sheep, you will get that colour of wool.