Organic wool yarn is wool that is from sheep that have not been exposed to chemicals like pesticides. The Organic Wool Factsheet of the Organic Trade Association (OTA) gives a detailed description of what does and does not constitute organic wool.
"The O'Mama Report"[1] of the OTA identifies "land management, livestock management, scouring processes, spinning processes and dyeing processes" as key factors that determine whether a wool yarn or product can be certified as organic.