This, my friends, is a hank of yarn. When you buy your yarn directly from the spinner (as I did with this pretty purple wool) they usually opt to sell them by the hank, because it's easier for them to polish up and measure their final product packaging it this way. Hanks are also prettier for displays, because they better showcase the texture and subtle qualities of the yarn. If you buy a hank though, it is NOT ready to be used for projects as is. I learned this the hard way on more than one project, and it was a mistake I wasn't willing to make again. If you try to knit a hank as is, you will spend hours and hours attempting to untie the giant knot that your yarn has become. Seriously, it's the worst.
Before you can go to work with a hank of yarn, you have to ball it. There are countless depictions of how to do this in old movies and pictures, usually involving a loved one standing by with yarn stretched over their arms.
I've seen characters doing this so many times before but never really got what they were doing. Now I know they were saving themselves the headache of dealing with a un-balled hank.
Even if you don't have a cute dutch child on hand to help you with balling, that's ok. You can use 2 handy kitchen chairs to the same effect.
And here's a complete tutorial. Seriously, this might have been the most important lesson on knitting I ever had.