Fabulous felted hand-knits : wonderful wearables & home accents 9781579905606 by Jane Davis has a good explaining of felting (fulling) knitting. She covers the basics, as well as using embroidery before and after fulling, cutting pieces after fulling and then sewing together and the use of novelty yarns. The most interesting point to me was her use of cotton crochet twine to help things keep shape or to effect the way things shrink. Much of the introductory information is available through Google books.
For the most part, I wasn’t too excited by her projects. I did like the cloche, which uses embroidery before fulling for the flower. The author says cloche shape happens fairly naturally because edges tend to flair out/not shrink as much when fulling. (DJ, this would explain your lumpy “finish it yourself” purse I just gave you.)