Felcloth is only dropped by demons unlike other cloths which is usually from humanoids and can be purified to produce one Mooncloth with two Felcloth. There are many places to farm Felcloth in Azeroth and Outlands, but the most effective place to farm Felcoth would be in Swamp of Sorrows right above Splinterspear Junction in the small area towards the cave and pond to slay the demons called Misty Grell. These demons will spawn quickly and drop Felcloth at a decent rate.

See below for the exact location to farm Felcloth in WoW.

Map of Where to farm cloth at Swamp of Sorrows for Felcloth