Lanolin is the mix of fatty acid esters of cholesterol, lanosterol (C30H50O), and fatty alcohols found in sheep wool. Since it's closely related to human sebum, the secretion that makes unwashed skin smooth (and unwashed hair greasy), it is indeed an admirable base for hand salve, makeup, baby oil, and other skin products. It's a soft yellowish or white wax at room temperature, and melts at or slightly above body temperature (depending on its purity and source).
Wonder-wax though it is, its associated odors can be quite nasty. After an afternoon of holding sheep down for shearing, your hands will smell like earwax for up to a week, no matter what soaps, detergents, and abrasives you apply to them. Even washed wool retains some of the smell -- see Pseudo_Intellectual's wu in The one smell which is impossible to wash off your hands.
Nevertheless, a very slight lanolin residue, with its sheepish miasma, can be a good thing in outer garments: it makes them more water-resistant* and less likely to be attacked by wool-moths. A few people have skin sensitive enough to be irritated by the fatty alcohols (and thus will find all wool itchy), but most everyone should be proud to smell a little sheepy.
* Wool isn't very water-resistant in the first place, but it doesn't matter much; its main advantage is that it insulates well when wet, unlike most other fibers.