This method of making charcoal uses the Charcoal Hearth. The same method is also used for the Charcoal Oven. The Hearth/Oven will produce a "batch" of Charcoal which is always the same. However, the amount of Wood needed is high, and the Wood to Charcoal ratio is nothing short of terrible. Bonfires are highly recommended over Hearths and Ovens.
The main difference between a Hearth and an Oven is the amount of Charcoal produced in a batch. A Hearth will produce 50 Charcoal per batch, the Oven will produce 100. Another difference is that the Hearth has a device called a "regulator", and an Oven does not. The regulator, as the name suggests, regulates the way the Hearth behaves. What this means is that it will act less randomly, and will give you more time to react to changes. However, the higher the regulator is set, the longer it will take to finish the process. Finally, the Oven in generally slightly slower than a Hearth. You could probably get more Charcoal more quickly by using two Hearths than by using one Oven.
This guide will assume you are using a Charcoal Hearth with the regulator set to 0.
First of all, you need resources. The Hearth requires at least 59 Wood to start, and a lot more to complete the process. Have about 150-200 Wood in your inventory. You will also be needing water, just in case things get a little too hot. Have at least 5 Jugs of Water with you.
Now click the Hearth and "pin" its menu. You will notice a series of bars and buttons. The Heat bar tells you how hot the Hearth is. The Oxygen bar tells you how much oxygen is currently in the Hearth. The Wood bar tells you how much wood is currently in the Hearth. The Water bar tells you how much water is in the Hearth. The Danger bar tells you how close you the current batch is to exploding into flames (thus losing it all). Finally, the Progress bar tells you how close you are to completing the batch.
The first buttons are pretty much self-explanatory... Add Wood, Add Water. The last three control the "vent", which in turn controls how much oxygen is being let into the Hearth.
The basic idea behind using a Hearth is to keep the heat as high as possible, without the batch bursting into flames. The higher the heat is, the more quickly you will progress. Anything under half heat and you will hardly make any progress at all. The ideal conditions for keeping heat as high as possible are oxygen/wood at 1/3 each and water at 0. So, that is your task... attempt to reach and maintain these ideal conditions. However, the Danger bar will be trying to stop you. The higher the heat of the oven, the higher the Danger bar rises. Oxygen also plays a lesser part in the Danger bar... let oxygen get too high, and the bar will rise slightly.
So ends the theory... now to put it into practice. Start the Hearth, and immediately add some wood by clicking the button once. After a few seconds the heat and danger should rise, the oxygen and wood should fall. Leave things as they are for now. After a few more seconds, the bars will change again... what they do will determine your next action.
If the heat bar rises, there is at least 1/4 oxygen and danger is a good distance away from being full, do nothing until the next change.
If the heat bar drops and oxygen rises, add more wood by clicking the button once... unless danger is too high to risk a heat rise.
If the oxygen bar is near empty, stop adding wood. If it is about to disappear completely, open the vent by one stage, otherwise the Hearth will be snuffed.
If the Danger bar is very close to being full, add water once. At the next change, heat and danger will fall, and oxygen will rise.
Be warned that when you add water, it can be quite difficult to regain proper control of the Hearth as heat will drop very rapidly. The easiest way to recover is to add enough wood to get the wood bar up to 1/2. If heat is still dropping, add even more wood until it begins to rise again. Basically, try to avoid using water until you really have to.
Also note that using the vent controls has a major affect on oxygen levels and heat. Closing the vent generally makes heat rise, whereas opening it all the way makes heat drop quickly. Using the vent at the wrong time can snuff the Hearth alltogether, or push the danger bar up to exploding point. Only use the vent as a last resort. As a general rule, try to use adding (or not adding) wood to control heat and oxygen.
Eventually, the progress bar will be full and will turn green. When this happens, dump any water you have left on the Hearth. When the Danger bar drops below 1/2, open the vent as far as it will go. This is basically to speed up the cooling of the Hearth. When the Hearth cools completely, you may take your Charcoal by clicking the "Take" button.
As mentioned before, the Wood to Charcoal ratio of a Hearth is pretty bad. Even an experienced user will most likely use at least 90 Wood for a mere 50 Charcoal. Of course, if you have masses of wood, that may be easily acceptable. Note that when you get better at using Hearths, you can use more than one at the same time to produce even more Charcoal in one go. But, at the end of the day, Hearths and Ovens will never be as efficient as a Bonfire.