The simple mechanics of the working of a wool farm is that when the sheep eats the grass(grass block) it grows wool on it and changes the grass block to dirt block. The observer which faces the grass block sees the change and sends a redstone signal to the dispenser which use the shears.
On using of the shears the sheep's wool drops and eat will wait for the dirt to change into grass and as soon as the dirt changes to grass it eats and the same process happens again.

The minecart hopper under the grass/dirt block collects the sheared wool and transfers it to the chest which is connected using a hopper!

Watch my youtube video to see how to make the farm and please like and subscirbe to my YT channel