A smelter is a type of furnace used to process ore into more useful bars of metal in a process called smelting. Conventional smelters require fuel, either charcoal or coke.
The Smelter is also the place where dwarves take items to be melted back into bars. Melting a masterpiece item may cause the creator of that item to throw a tantrum.
To build a smelter you must use gray stone blocks - blocks made from light or dark stone, metal, or glass cannot be used. The construction is then a two-step process - first a dwarf with the Architecture labor enabled will bring the blocks and design it (using the Building Designer skill), and then a Mason will perform the actual construction. These can be the same dwarf, but doesn't have to be. Using dwarves with no skill training will get the job done, but will result in buildings of slightly less architectural value.
There is also a magma version of this building, which is built next to the magma flow using steel bars and requires no fuel. Note that the process of making pig iron or steel will still need one unit of charcoal or coke.