Right click with it equipped to display the new GUI:
Place a block into middle slot, and click on one of (up to) 16 variations of it to carve that variation.
Following are 4 images that show all currently possible variations, around 300 total.
Two new blocks are added to worldgen: marble and limestone. Each can be crafted into stairs and slabs. Marble can also be crafted into pillars which in turn can be crafted into pillar slabs. All these blocks have 16 variations each, that you can obtain with chisel.
Access to new blocks is provided mostly through one tool: chisel. Craft it out of a stick and an ingot like this:
Alternative recipe can be enabled in config file: