Minecraft Java Edition – Are Sheep Permanently Dyed?

Bone Meal is also used to make Light Blue and Pink Dye (when mixed with a Lapis Lazuli and a Rose Red respectively). As to why you would need to make white wool, I don't know.

Sheep can regrow wool by eating a grass block (converting it to dirt). In addition, if you dye the sheep and then shear it, the wool grows back coloured. So this way you can generate flocks of rainbow sheep.

History: In early versions, after eating three grass blocks, they would regrow their wool(source). This disappeared (sheep would no longer eat grass), and then was added again in Minecraft 1.1.