The Collaborative International Dictionary of English v.0.48:

Yarn \Yarn\, n. [OE. yarn, [yogh]arn, AS. gearn; akin to D.
   garen, G., OHG., Icel., Sw., & Dan. garn; of uncertain
   origin. Cf. Cord.]
   [1913 Webster]
   1. Spun wool; woolen thread; also, thread of other material,
      as of cotton, flax, hemp, or silk; material spun and
      prepared for use in weaving, knitting, manufacturing
      sewing thread, or the like.
      [1913 Webster]

   2. (Rope Making) One of the threads of which the strands of a
      rope are composed.
      [1913 Webster]

   3. A story told by a sailor for the amusement of his
      companions; a story or tale; as, to spin a yarn. [Colloq.]
      [1913 Webster]

WordNet (r) 3.0 (2006):

yarn
    n 1: the act of giving an account describing incidents or a
         course of events; "his narration was hesitant" [syn:
         narration, recital, yarn]
    2: a fine cord of twisted fibers (of cotton or silk or wool or
       nylon etc.) used in sewing and weaving [syn: thread,
       yarn]
    v 1: tell or spin a yarn