Question

What really is the Wool Pooh that the children are warned about?

Answer 1

From Internet:

The Wool Pooh takes on a hazy physical shape, kind of like the grim reaper - hooded, faceless, and terrifying. For Kenny, the Wool Pooh represents death and his fear of death. It appears when he is caught in the whirlpool and almost drowns, and again at the site of the church bombing when he finds the little girl's shoe.