More details about the release can be found at the links below. Your client should ask if you want to update, just say yes.
http://www.youtube.com/watch?feature=player_embedded&v=nDrU6GTq8HM
http://www.minecraftwiki.net/wiki/Version_history#1.1
http://mojang.com/2012/01/12/minecraft-1-1-update/
And yes sheep grow back wool.