Caterpillar on oak tree
The fuzzy balls are galls formed by the tree leaf in response to the feeding of the larvae hatched from an egg deposited by a tiny gall wasp. While they may look menacing, galls pose very little threat to tree health in most cases and are not worth controlling. The leaves fall to the ground in the fall, the following spring the wasp will emerge.
For more info on galls see click on the attached link.