When I put my rear end together, I too found the felt seals which were standard for our cars back then. They do not rotate but stay in place and the design worked well for the time. The front wheels also have felt seals. If you look on EBAY they sell the felt seals for the back and the front wheels. I've purchased these and they work fine. I did replace my rear seals with a modern version recommended on this site in the technical section, but they are tough to get on. If I had to do it over again, I'd go back to the felt. It will last for years before having to be replaced.
Where Are You From? Oviedo, Florida
Do You own a car built by Durant? 1928 Durant Model 65