In the Temperate climate, Wood is used to make furniture (one of the many types of Goods). Trees are cut down at the Forest and transported by you to the Sawmill where they are further cut up and made into useful products.
In Sub-arctic regions, wood is not used for furniture but is instead sent to Paper Mills to be made into Paper.
In Sub-tropical regions, wood must be supplied by the player using the Lumber Mill.
You can read more about wood, processing it and its uses at Wikipedia.