A chisel head is made with any workable metal ingot at an anvil, or by smelting liquid metal into a chisel head ceramic mold. It cannot be made from stone. The heads can then be made into chisels by placing one stick below them in the crafting grid.
The chisel is used to carve out stairs or custom designs in stone or wood blocks. Any block with 2 raw stone blocks above it cannot be chiseled. This is to prevent work-arounds for preventing cave-ins while mining.