The sheep is unlocked, along with the Cow and Dog, after you cure Max of his illness.
All animals have random skills they may earn as your relationship with them grows. Sheep can learn three skills, and impregnating it with a miracle potion will lead the lamb born from it to inherit it's mothers skills or earn incredible skills (which can only be earned through birthing the lamb)
All Sheep need to eat daily. A fed sheep can be sheared once every (?) days, even if it's outside.
To raise it's affection a sheep may be pet daily and brushed every few days.