Cocoons are strange objects found in the Creature stage of which creatures of certain species "metamorphose" in. This might actually represent creatures evolving. If a player listens closely, they can oddly hear sounds of hushed battle and rubbery squidgy sounds inside.
When cocoons hatch, a green mist will shoot out, and a new creature or stronger version of the old creature inside will appear. They can be interacted with after you wait 30 seconds. After a minute or so one of the hatched creatures will lay an egg.
Cocoons may appear when the game selects a new or better evolved creature to replace a more primitive one. This usually occurs when your creature's brain capacity increases, generally towards the beginning of the creature stage. This would prevent the game from getting too easy or too hard. The previous creatures will jump and spin, transforming into a cocoon, which will then lay dormant for a few minutes, before the new,superior creatures hatch out and assume control of the nest.
Sometimes, an egg may be laid before the creatures go into cocoon phase. This egg can be attacked without the notice of the other creatures. If the egg hatches, it will emerge as the more advanced creature that will hatch out of the other cocoons. Also, a single alpha creature may not metamorphose and instead watch over the cocoons. On the occasions this does happen, the superior creatures either kill, chase off, or ignore the lesser species.
Cocoons can also be used as scenery in the Adventure Creator. However, creatures can't emerge from them, nor do the cocoons secrete the green ooze unless the player adds it manually.
Very rarely, you might find a cocoon at your nest (I have encountered this before.)