Thread is almost purely a vanity ingredient. It goes into costumes and nothing you would fight in, and it sits in a chest until you decide to finish an outfit. Black and pink both come off the Clothier's shelf, so getting them is a question of having him housed and having pocket money. Green is the odd one out: no vendor stocks it, you make it at a Loom from jungle seeds, which means a trip you would not otherwise take.

why it has a strange name

These were the original dyes, back when there were only a handful of them. When the real dye system arrived the old ones were renamed to thread and pushed into vanity recipes, which is why a material named after cloth has nothing to do with the dyes that go in your dye slots.