The phrase “to pull the wool over one’s eyes” is a very roundabout way of saying to hoodwink, to delude.
The expression is said to have originated in the United States, probably because the earliest use of the expression in print that has yet been found is American.
But this was in a newspaper, so it must have been widely known at that time, 1830, because the meaning was not explained.
The actual source was likely to have been much earlier, and perhaps in England. Quite probably, “wool” was jocularly used for hair, and perhaps for the hair that composed a wig.
Hence, the expression may have originated in a practice, either sportive or malicious, of pulling the wig of some nabob over his eyes to blind him temporarily, perhaps for the purpose of snatching his purse, or perhaps just teasingly.