Straw is obtained by using a knife or a scythe on tall grass, or refining grains (again, with the knife). Its uses are: firing items in a pit kiln and creating thatch.

Thatch is created using four straw and creates a gravity defying block, that you can use to build a shelter. Thatch is (since v78.16) flammable, so make sure to keep it at least 1 square away from fire if you wish create an indoor pit kiln.

Any block affected by gravity, placed on top of a thatch block, will break the thatch block.

From version 79, thatch is no longer a solid block yet blocks vision. This means players and mobs can pass right through it, but cannot see through it, making it viable cover. Running water will displace thatch (i.e. make them pop out as items).

Thatch is primarily a decorative block since its change to a non-solid block.