From the website/episode:

Have you ever accidentally laundered a favorite wool sweater and ended up with a doll-sized garment? If so, you already know a little about felting, a process by which knitted wool is soaked in hot water to shrink and tighten the fibers and create a dense fabric. Show host Vicki Howell and knitting expert Beverly Galeskas (and, of course, the Knitsters) demonstrate felting and show how to make a funky, flowery felted purse.

Note from Bev Galeskas
This pattern seems to have been removed from the DIY website along with the other Knitty Gritty patterns. I have to check my contract with the producer before doing anything about making it available again.

We do have a similar pattern (same purse, just larger sizes) available from Fiber Trends.