When we talk about wool from sheep, Merino is the standout - the softest sheep's wool known. The finer grades of Merino are great for wearing next to the skin - none of the scratchiness or discomfort that we typically associate with wool. The yarns spun from Merino wool are soft and almost buttery while the handspun Merino yarns, in addition to their softness, have a wonderful squish to them because of the thick/thin nature of the spinning.
Merino sheep originated in North Africa, descended from a strain of sheep developed during the reign of Claudius, from 14 to 37 A.D. and then spread via the Spanish and French royal families to northern Europe. The original Merinos were primarily a wool sheep who sheared a very heavy, fine fleece. They were also quite small in size. Larger Merinos have been developed along the way for meat and greater reproductivity.
The fibers are all of a similiar diameter which greatly improves spinning performance.
There's a lot of strength along the length of the fiber which decreases waste and contributes to the wool's durability once spun.
The wool has greater whiteness than other wools which increases the range of colors possible in the dyeing process.
The consistently small diameter of the fibers results in a softness that thicker fibered wools can't match.
Wool from the Merino sheep has long been recognized as one of the world's most important and valued natural fibers for reasons other than just its softness.
Merino sheep are noted for their hardiness and their herding instincts and have been used as parents of several other breeds, notably the Rambouillet of France which also produce a very fine, soft wool. The Merino are in fact, the parent breed for most of the world's sheep today.
Aside from all of the history and technical stuff, I use Merino yarn in my Pussy Caps because it's soft enough to wear next to the skin, because it has such an amazing feeling to it and because it's often very affordable compared to many other yarns that are its peers. And too, because there's so much Merino wool available it's spun into an almost unlimited variety of styles and colors of yarns.