Caterpillar: type found in southwest or Middlesex, principally (8)
I believe the answer is:
silkworm
'caterpillar' is the definition.
(I know that silkworm is a type of caterpillar)
'type found in southwest or middlesex principally' is the wordplay.
'type' becomes 'ilk' (ilk can mean a type or kind).
'found in' indicates putting letters inside.
'southwest' becomes 'SW' (synonyms).
'principally' suggests taking the first letters.
The initial letter of 'middlesex' is 'm'.
'ilk' put inside 'sw' is 'silkw'.
'silkw'+'or'+'m'='SILKWORM'
(Other definitions for silkworm that I've seen before include "It feeds on the 24" , "Caterpillar yielding fine fibre" , "It feeds on mulberry leaves" .)