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Wood arrows are T1 arrows for use with T1 "Short bows", and ONLY T1 bows.

You can get wooden arrows by killing T1 monsters that are using a bow.

A good thing about arrows is that you can trade in lower tiered arrows for higher tiered arrows with a merchant, it takes 3 wooden arrows for 1 Stone Arrow(T2)

In a recent update Wood Arrows are now called Bent Arrows.