Ned leads to you believe that he makes rope from wool. During The Fremennik Isles quest, however, you discover that Ned trades with the Fremennik in Neitiznot, exchanging the wool he receives for rope. The Fremennik are amused that you would believe sturdy rope could be made from something as flimsy as wool rather than tough yak hair.
After The Fremennik Isles quest, if you buy a rope from Ned your character will notice that it smells strange, and if you finish through the dialogue, Ned will give you a second rope for free, as a payment for your silence. (Note: After you get the second rope, if you click elsewhere on the screen before ending the conversation before bringing it to its natural close, you can get the second free rope again and again.)
The level 6 muggers in the Asgarnian Ice Dungeon are a relatively convenient and easy way to get rope drops, for players unwilling to purchase rope, as are those in the Stronghold of Player Safety underneath the classroom just north of the Barbarian Village.
Rope is used with terrain in at least three different ways:
Permanently placing the rope on the terrain. The rope simply remains there, allowing you to always pass the obstacle. The one used to enter the A Soul's Bane rift is one such example.
Placing the rope on the terrain and losing it after limited use. For example, a rope is required to enter the Kalphite Lair and previously remained at the entrance only for as long as you were in lair. If you left the lair (whether by climbing up the rope or by teleport), the rope disappeared. This required you to bring a new rope each time that you visited the lair (two ropes if you wished to reach the queen's chamber). However, Jagex has since made both ropes in the Kalphite Lair permanent.
Placing the rope on the terrain and getting it back after passing the obstacle. It automatically returns to inventory when you get past the obstacle. The rope used on the rock to enter the Mountain Camp is an example of this.
Rope can be used for the minigame Fishing Trawler where it allows players to fix the net.
Ropes are a decent way to make money, players often go to Ned in Draynor Village with either a lot of money or exactly 420 coins each trip (210 if Fremennik Isles is completed), so each trip the player can get 27 or 28 ropes from him. If sold for 100 coins each on the Grand Exchange, the player will receive 85 coins for every rope he collects, getting 2380 (if he hasn't done Fremennik Isles) or 2590 (if he has done Fremennik Isles) coins profit for each run. This is often done by beginning players, and it takes a long time to collect all the ropes because the player needs to speak to Ned for each rope (it goes almost twice as fast if Fremennik Isles is done). Besides from that, Ned is relatively close to the bank.