At the beginning of the game, you start out with 4 wooden tools (a pickaxe, an axe, a shovel, and a watering can). You can refill a watering can by equiping the can and double-clicking a source of water. All the other tools have durability (just like equipment), so you will need to repair them every so often.
The watering can is used to keep plants healthy. Equip the watering can and double-click a plant to water it.
Axes can be used in dungeons or at home. Equip the axe and double-click a tree to cut it.
A pickaxe is used to mine rock or plow the ground for crops. Equip the pickaxe and double-click stone or grass.
You can also use your pickaxe to remove or add walls in your cave (home). Equip the pickaxe and double click a section of wall to remove it, or an empty space to add a section of wall.
The shovel is used to dig holes. Equip the shovel and double-click a plot of grass to create a hole.