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.
And don’t get me started about dirt in the bark and chips. It will eat a boiler up. The dust and sand act just like sandblasting on the boiler tubes. They will erode and begin to leak.
How do you get dirty fuel? First you drag the logs out of the woods with a skidder and collect dirt. Then pile it on the ground at the mill prior to burning. The sand and dirt that doesn’t go up into the hot gas stream turns to glass on the boiler grates and cause a mess. Grates have to be constantly raked.
Its also amazing to see a year-old induced draft fan with blades made of hard surface weld overly that have been completely destroyed by the dirt and sand.