In real life, it is used in conjunction with charcoal and sulfur in order to make gunpowder. This process does not exist (yet; it seems Toady has plans to include gunpowder later, but only for simple uses) in Dwarf Fortress, and therefore gunpowder is also non-existent.
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It is rumored that if a dwarf ever discovers saltpeter's capabilities, dwarven "civilization" would come to an explosive, but Fun end.
[INORGANIC:SALTPETER] [USE_MATERIAL_TEMPLATE:STONE_TEMPLATE] [STATE_NAME_ADJ:ALL_SOLID:saltpeter][DISPLAY_COLOR:6:7:1][TILE:'x'] [ENVIRONMENT:SEDIMENTARY:CLUSTER_SMALL:100] [SOLID_DENSITY:2105] Previous value was much too low [IS_STONE] [MELTING_POINT:10601] [BOILING_POINT:10720]