Here is a picture of my most recent sweater purse, made from a felted wool sweater rescued from the thrift store. The lining is made from a corduroy skirt also from a thrift store. I made it for my oldest daughter for Christmas.
I felted the sweater in hot water in my front loading washer with a little Woolite and then put the sweater in the dryer. Once it was felted, I cut out a purse that fit the sweater. My dd wanted one that was fairly large, more like a tote. I took the felted sweater with me to the thrift store and shopped for an article of clothing that matched to make the lining. My dd had liked the idea of corduroy, so I used a corduroy skirt, which adds to the sturdiness of the purse. I think it turned out pretty cute.