Here's something from an internet page on the history of crewel:

Crewelwork came to the United States from England, where it gained its popularity during the rule of King James I. This time in history was the Jacobean period and the embroidery of the time was called Jacobean. Crewel was taken from the type of yarn that was used "krua" which means wool. This wool yarn was a thin worsted yarn made of two threads. The term crewel embroidery actually means wool embroidery and today refers to the design of the period not just the wool yarn that was used in the stitching.

http://www.geocities.com/PicketFence/Street/3400/crewel.html

So, crewel simply meant--way-back-then when it had a slightly different name--wool.

Cewel.