Pellets for residential are simply compressed fine sawdust. Thats all they are.
Actually, the process is a bit more involved. First, the sawdust, chips, etc, are refined (sized) into a uniform consistency. Then the raw material is dried (often using fossil fuel) and then pressed into pellets through dies.
http://www.woodpellets.com/heating-fuels/pellet-processing.aspx
The company I retired from built and installed parts of a couple of plants here in Louisiana a couple of years after I retired. The pellets were for export. Back when oil was $100/bbl, and natural gas was $6-$8/MCF, it made economic sense. Not to much now.
I don’t even know if the plants are running now.
The key to burning wood is consistency. You can burn dust, or you can burn chips, or you can burn pellets. But you can’t burn a combination of the three efficiently.
The problem is the air/fuel mix. To properly burn, you want just enough air to support combustion. Too much air, and it goes up the stack as waste heat. Not enough, you get incomplete combustion (smoke).
With consistently sized fuel, you can control that much better. Hence the efficiency of coal dust, a very consistent fuel. So too with gas or atomized oil. The air molecules contact the fuel efficiently and is completely utilized. Very little waste heat.