Graupel are small, soft pellets almost like what you would find inside a bean bag. They are different from sleet, which are ice pellets falling from the sky.
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How graupel forms is quite interesting. Snow forms up in the clouds. That snow then falls through a layer of supercooled water droplets. That means temperatures are below freezing in this layer of air, but water stays in liquid form and hasn't frozen.
The tiny rain droplets freeze, or rime, onto the snowflake. This forms a coating around the snowflake, resulting in the white pellets that resemble small hail. But unlike hail, they are soft and crushable.