What are wood pellets?

Wood pellets are a type of biomass fuel, generally made from compacted sawdust. They are usually produced as a byproduct of sawmilling and other wood transformation activities. The pellets are extremely dense and can be produced with a low humidity content (below 8-9%) that allows them to be burned with a very high combustion efficiency.
The heating value of 2 pounds of wood pellets coresponds to the heating value of 0.2 gallons of heating oil.

Further, their regular geometry and small size allow automatic feeding with very fine calibration. They can be fed to a burner by auger feeding or by pneumatic conveying. The wood pellet stoves and wood pellet boilers on the market today can reach efficiencies up to 95%. Okofen, an austrian brand, even has a condensing boiler with an efficiency grade up to 103%.

Their high density also permits compact storage and rational transport over long distance. They can be conveniently blown from a tanker to a storage bunker or silo on a customer's premises. It is ofcourse important to store the pellets dry since they are hygroscopic, they absorb water from the surrounding air.

As the price of heating with fossil fuels increases, more capacity for pellet heating has been installed. A large number of models of pellet stoves, central heating furnaces and other heating appliances that use wood pellets as a fuel have been developed and marketed since about 1999.

Source: Wikipedia