Zen Knitting

It is called Yarn Painting. Done by the Huichol Indians of Mexico.

Here are a few links about the craft, along with a few projects.
http://www.kinderart.com/multic/yarn.shtml
http://www.planeta.com/planeta/98/1198yarn.html
http://www.thefreelibrary.com/Art+project:+yarn+painting.-a030433649

For more info & links, here’s the Google search link :
http://www.google.co.in/search?client=opera&rls=en&q=yarn+painting&sourceid=opera&ie=utf-8&oe=utf-8

I once gifted this sort of art kit to my friend & her daughter, although it wasn’t the classic traditional kit. It was ‘modified’, in the sense that the picture was of a woman on black velvet & along with yarn, there were sequins, beads, etc. too, to adorn the painting.

Hope this helps
Have fun