How to Recycle Fabric
The obvious answer to the recycling of fabric is to make it into other things.
Anyone who sews even just occasionally will know that there is a certain amount of "left-over" scraps that just aren't good for much of anything given their size. That's how Patchwork bed covers was invented
Second-hand shops: "reduce, re-use, recycle"
Donate clothings you do not use anymore and visit second-hand shops once in a while where you might find the piece you need.
Felting/fulling an old wool sweater in the wash then cutting it up to make slippers, bags and mittens? Any sweater that is mostly animal fiber will felt in hot water. The felting is the result of harsh mouvements of the wool in hot water, as wool fibers open and interwine. If you use a washing machine throw in a couple pair of jeans or tennis balls to help the fabric felt up evenly.
knit and crochet.
With some patience and planning, you can deconstruct old knits - sweaters, skirts, etc - and re-use the yarn to make other items. Be careful to choose a knit that does not have serged seams; they indicate that the garment was probably cut from a large fabric and you will end up with lots of little strings and very little usable yarn.
Don't be afraid to make old clothes into new clothes. Unless sewing is very new to you, it is a great way to freshen up the wardrobe. Embellishing clothing has become a popular trend. There are hundreds of articles online as well as books and magazines that can give you inspiration.
Re-purposing - aka new use - is also an option. Altering existing textiles to become other items that are useful and attractive. Why not make bags out of curtains? Or turn a skirt into a little girl's dress?