Cotton Seeds are craftable Seeds, which are used to grow Cotton Plants, harvested into Cotton in order to get a stead supply of Cloth. Cloth is a common resource needed for crafting, especially for Clothing. Cotton Plants are easily found in the Forest biome.
Cotton seeds can be crafted with 4x Cotton one 1 level has been invested into Living Off The Land (Perk)
One cotton plant produces one cotton seed. To do so, select the cotton plant in your inventory then select "Recipes" in the Examine menu pane. On the left, select "Cotton Seed" and then click "craft."