Hooked rugs are created from leftover fabric or yarn that is looped into a backing fabric using a hooked instrument to pull the loops through the backing. It has a distinctive look and quite a history. Typically, if a housewife needed a new hearth rug or bedside mat, she commandeered the makings for it from materials she had on hand. First, she would sketch her pattern onto a foundation of woven linen, or, after its 1850 debut, jute burlap. Next, she would cut and dye thin strips of fabric from, say, an old woolen coat or cotton dress, or else collect pieces of wool yarn. Then, with the aid of a rug hook, she would draw the fabric or yarn through the foundation to form loops of color that created the design. Here’s a link to a brief explanation of the process.
As a general rule, rugs hooked with thin strips of fabric (wool, cotton, linen, etc) are more desirable and more valuable than the yarn hooked variety. It took a lot more work for the home hooker to cut fabrics into thin strips, which were usually wound into a ball. The charming variation in colors and the textural variety of a rug hooked with strips of cut fabric can be absolutely gorgeous. Rugs hooked with yarn do not achieve this richness because of the uniformity of color of the yarns.