Charcoal is an ingredient in smithing, which can be made by sealing a firing adobe kiln with adobe. It can be removed from the kiln with a basket. Dumping a basket of charcoal on the ground results in a Big Charcoal Pile, which contains three individual pieces of charcoal.
To create charcoal, first put kindling inside a kiln and set it on fire with a firebrand. Then, while it is still burning, use adobe on the kiln to seal it. After 30 seconds, when it stops smoking, you can remove the adobe and pick up the charcoal with a basket, or, add bellows to the kiln to create a forge with charcoal, ready to be fired. A full basket of coal can be placed back into a forge, but cannot be returned to a kiln.
Combining a piece of charcoal and a wrought iron into a clay bowl will create a Crucible with Iron and Charcoal, which is used to smith steel ingots. A piece of charcoal can also be whittled with a knife to make a charcoal pencil.