A misnomer really as cotton can’t be felted in the true sense of the word.
In upholstery terms, cotton felt is a narrow width roll of uncompressed carded cotton, or cotton and wool mix, approx. 25mm thick and sandwiched between thin paper layers.
Cotton felt is only used in traditional upholstery as the final layer of padding before the top cover. The less authentic option for modern furniture is polyester wadding, which is nothing like as good, but is far easier to manage.
As the top cover is fixed the wadding is compressed so that any natural unevenness is smoothed out.