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Created by burning wood.
 
— In-game Description

Charcoal is a resource produced by burning Wood in the Campfire, Standing Torch, Cooking Pot, Wall Torch, Refining Forge, Stone Fireplace, or Industrial Forge. The fastest way to produce Charcoal is in the Industrial Forge, which produces 1 Charcoal in 1 second. Charcoal is a catalyst in many Dyes. 1 Charcoal is combined with 1 Sparkpowder in the Mortar and Pestle to produce Gunpowder.

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