how does crafting work in Terraria?

Answer 1

You need a work bench to start with, made from wood. Then you need a furnace, which you need stone, wood and torches for. These let you craft bricks, which lets you make Iron Bars. You use these to make an Anvil.

For more crafting recipes, go here. http://terraria.wikia.com/wiki/Crafting

For a gameplay guide, go here. http://nerd-age.com/?p=175

Answer 2

This site has the best layout to easily find crafting recipes for terraria - http://terrariacrafting.com