Most sheep are white. White sheep have a 81.836% chance of spawning. Light gray, gray, and black sheep all equally have a 5% chance of spawning. Brown sheep have a 3% chance of spawning, and pink sheep (the rarest of all) has a 0.164% of spawning.
If you kill a sheep they will drop 1 wool. The color of the wool will be the original color on the sheep. Sheep will not drop wool if they have been sheared and haven't grown back their wool. 1-2 raw mutton, and 1-3 experience orbs.
When sheared sheep will drop 1-3 wool. A sheep will regrow the wool after eating grass.
A sheep's wool can be dyed by using dye on the sheep. If you dye a sheep and then shear it, its wool will continue to be the dyed color. You can also use a name tag and name your sheep jeb_ to get a cool ombre rainbow effect on your sheep's wool.