From the Super Mario Wiki
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The Yoshi Hut is a building on Craft Island in Yoshi's Woolly World and Poochy & Yoshi's Woolly World. It resembles a pincushion and its function is to select a Yoshi design easily. When the player enters, a menu will appear where the player will be able to swap their Yoshi designs. Additionally, the player can save a design to a Yarn Yoshi amiibo. Another similar hut, the amiibo Hut, contains designs that can be unlocked by scanning compatible amiibo.
In Poochy & Yoshi's Woolly World, the Yoshi Hut serves the same function as in the original game, except the player can also create up to 10 Yoshis, share them, and receive designs from other players.
"At this happy hut, you can switch Yoshis or save a design/color combo to a Yarn Yoshi amiibo!"