The sheep pen is a living space for sheep, and allows guaranteed slaughtering of your sheep, to produce the sheep byproducts. It may be built in a compound, or outdoors with a small construction site (which must be on grass for 'grazing').
Slaughtering a sheep yields 6 mutton, 10 oil, and 2 leather.
Considerably more info may be found on the livestock pages.
Built: in a compound, uses 29x48 cells, or in a small construction site placed on grass.
Skill/Tech required: Animal Husbandry