Spawning
Sheep will spawn naturally on in the Overworld Grass Blocks. They can naturally spawn in any biome other than dessert and ocean biomes. As well as this, Sheep can be spawned from a Sheep Spawn Egg which you can get from the creative menu.
Drops
Drops are items which are 'DROPPED' by an animal. This usually happens when the animal is killed, unless specified.
Breeding
Two adult Sheep can breed to make one baby Sheep by giving a piece of wheat to each of the adult Sheet.