Woolly Worm are said to mimic Caterpillars (terrestrial) that somehow drop or get flushed into the water.

Al Campbell in his Beginners Fly Tying Series showed how to dress both the Wet and Dry versions of the Woolly Worm. Al shows one style of tying of dressing for the Woolly Worm as a dry terrestrial, and two styles of tying of dressing for the Woolly Worm as a wet terrestrial.

Beginning Fly Tying: Part 12, Hackle and Woolly Worm
http://www.flyanglersonline.com/flytying/beginners/part12.php

Material List for Dry and Wet Wooly WormHook: Streamer 2xlong; Eagle Claw L058, Tiemco 5263, Mustad 9672, Daiichi 1720. Body: Chenille, any color you wish. Hackle: Saddle or neck, saddle is preferred. Color to match the body if desired. Thread: 3/0, color to match body or black. Rib: - Wire (used in one method of tying).
Using the same materials for all three versions of the Woolly Worm, just different methods of dressing the hook. ~Parnelli

I have completed the whole 60 part series of Al Campbell's Fly Tying series, and sent him copies of each of the fly patterns that he included in his instructions. Back then I printed all of the articles out on double sided card-stock paper, and created my own three binder collations of the 60 part series. And I showed it to Al at a FAOL Fish-In where he autographed my copy of his work

Al Campbell was not only my instructor and mentor, he was also my friend... ~Parnelli