MDF (Medium-Density Fiberboard) is made from pre-consumer recycled wood, usually sawdust from a sawmill or wood chips from lumber operations. The wood particles are mixed into a dough with a polymer binder (e.g., glue or resin) and consolidated under heat and pressure to form a panel.
MDF is a very nice prototyping material because its inexpensive, uniform in texture and color, and takes paint very well. Don't confuse MDF with particle board which uses much larger and looser wood fibers. MDF is actually nice stuff, especially for laser cut prototypes. MDF is a little lighter (in both density and color) than high-density fiberboard (HDF), which is sold under the trade name Masonite, and sometimes called hardboard. Because it is so inexpensive and thus a good material for use in trying out a design, MDF is sometimes called MDF Draft Board.