The Firestarter creates a fire if you right-click with it in your hand. The fire will appear in front of your character. The fire won't hurt you. The fire lasts 20 seconds once you start it. If you right-click with raw meat in front of the fire it will become cooked meat.
You can cook chicken on the fire, making a Cooked Chicken.
Combine a piece of Stone with a piece of Coal to create a Firestarter. This consumes both your stone and your coal. You can also combine 2 pieces of coal to make a Firestarter. The process will consume both pieces of coal.