From Technic Wiki
When combined with a tool in the Tool Station, the tool will smelt the block if an applicable smelted version exists. For example, the Pickaxe will smelt Cobblestone drops into Stone, Iron Ore into Iron Ingots, etc. The Shovel will smelt Sand into Glass, and Gravel Ores into Ingots or Nuggets. The Hatchet will smelt Wood into Charcoal.
When combined with a weapon, the weapon will have a Flame enchantment effect which will set a mob on fire when struck