The banded woollybear caterpillar, Pyrrhactia isabella (also called the woolly worm), is famous for foretelling the upcoming winter severity based on the width of the middle band. The adult is called the Isabella moth. This insect overwinters either as caterpillar or pupa inside a flimsy cocoon. These caterpillars have some chilling requirement in order to resume proper development next spring. In the spring the remaining caterpillars will pupate and the Isabella moths will emerge and lay eggs. Banded woollybears feed on plantain (a common weed). They are quite active and are a barrel of fun to rear, I'm told (I guess some people find their fun in a barrel). There may be at least two generations per year.
I can't ignore their reputation, and I also can't neglect to mention the 31st Annual Woolly Worm Festival this October in Banner Elk (Avery County), North Carolina (for more information on the festival, see http://www.woollyworm.com/).
Steve Bambara, Extension Entomologist, NCSU