Wolves and dogs are the same species, Canis lupus.
They can fully interbreed and offspring are fertile.
Interbreeding is possible and occurs between species as well.
Canis lupus and Canis latrans (coyotes) have been observed interbreeding in Canada since the 1920’s.
Ursus maritimus (polar bear) and Ursus arctos (brown bear) are interfertile.
These are relatively recent divergences, but the mechanisms driving them don’t stop there and there have been billions of years for all the species to evolve from much simpler organisms. There is a really good overview at http://en.wikipedia.org/wiki/Evidence_of_common_descent