They will look for saplings on their own, however they are pretty bad at finding them, and can always use the help of the player. If they see you holding a sapling they will come and beg for it, hands held high, hoping for you to give it to them:
Should you give them the sapling, they will continue on their merry way and plant more trees.
Watch out, though, if they see you with any logs in your hand they will run over and smack all the logs out of your inventory just to show you that they don't take kindly to the murder of their kind!
KodachiZero has put a lot of effort into this mod and it shows through in his extremely detailed write up posted on the forums. They even have an evil counterpart that appears if the player sets fire to trees, or kills a grove sprite.
If you'd like to know more, check out KodachiZero's full write up over in the Mapping and Modding forums here.
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Sounds both clever, useful and annoying at the same time. I suppose people who like to build wooden structures wouldn't install this mod. Because having your materials knocked out of your hand sounds more irritating then innovative. Then again I suppose these guys are killable.
Read the mod's page... It seems these guys are more irritating then I first presumed. They knock out your tools too wll your axe mainly and you are penalized after killing 3 of them. Sounds like the modder doesn't like people touching tree's. Or at least they wanted to make it a chore.