Clock

Clocks, also sometimes called watch, work like compasses, in the sense that you cannot use them to change the physical world, but their image changes depending on the circumstances. The clock displays the sun and the moon's position relative to the horizon.

Clocks were added in the Halloween Update on October 31, 2010.

Crafting
watches are created by using one redstone dust and four gold ingots (see formation below).

Telling the Time
Below is an animation showing how the clock works. The clock consists of two halves, a day side and a night side. These spin slowly to tell you the time of day, corresponding to the sun or moon's actual position in the sky. This allows the player to tell the times of Dawn, Noon, Dusk and Midnight. The Player is able to sleep a few seconds after the clock shows exactly dusk (when the line between day and night on the dial is straight). This can be useful for getting to sleep as soon as possible, therefore not allowing any hostile Mobs to spawn in the darkness. Also, the clock can be useful in caves, as it will let the player know when they can sleep in the cave, and when it is safe to leave. When playing on 'Short' or 'Tiny' render distance, the Sun and Moon are not visible; this makes a clock an extremely useful and essential item, as it is the only accurate way of telling the time. However, on any other Render Distance, the sun and moon are visible in the sky, making the clock less necessary, however still quicker than looking into the sky, and still useful in caves. Just like compasses, clocks do not work in The Nether or The End, their dials will only rewind rapidly showing random time of days, making it useless for determining the position of the sun and the moon.

Alternatives
If you do not have a clock, you can approximate the time by looking at the position of the Sun or Moon in the sky.

In the menu, the item statistics list shows an accurate clock next to your clock statistics.

Furthermore, one quick trick to tell the current time while underground is to toggle the view distance in the options menu. Doing this redraws all blocks around you, which may give you just enough time to see if the sun or moon is out (Works better on slower computers).

You may also try mining a long tunnel, of 2 blocks high and 1 block wide, and looking down it from a distance with the shortest view distance selected (in the options menu). You should notice how the lighting in the hallway will become a lighter whitish color during the daytime, and will be a darker blue hue during the night. This technique will work at any level in the earth.
 * This is no longer possible ever since the addition of the void. The light level in the location you are at will determine what light level you see. For example: If you have a torch near you it will be brighter. Darkness around you and it will be dark. When below layer 15 The Tunnel texture will always appear black.

Also if you are building some place high (Tower mountain cave roof etc.) you can build a 1x1 tower by jumping and placing blocks, put torches on it and you can tell when its noon or midnight dawn or dusk by the tower. It is also used to find your way back to base. Remember to make the time tower or obelisk taller than the trees.

Textures
Unlike most items the clock combines 2 textures, one being the actual clock, and the other, the dial. So you may change the clock's texture without worrying about breaking the dial, as long as you do not change the transparency.

Trivia

 * When switching Anaglyph mode on or off in the options menu, the clock face will appear purple or bright pink respectively when either in the hot bar or held.
 * When the recipe for a clock is laid out on a crafting table, the clock displayed in the output field will be functional; thus you can tell the time without permanently crafting the gold and redstone into a clock.
 * Unlike most tools, clocks are stackable. This makes multiple clocks easier to store.
 * As with the compass, once one has crafted a clock at any point in any world it is not necessary (although still convenient) to do so again, as the image in the statistics menu is functional.
 * A Clock will function whether it is in your inventory, in a chest, about to be crafted, on the ground, in the statistics menu, in someone else's hand, or anywhere else, even if it is not supposed to be there.
 * In the UK version of Minecraft, the clock is called a watch.
 * If sleeping with a clock in your hand, upon waking, the clock dial will spin rapidly to catch up.
 * After completing 100 day-and-night cycles in the Xbox 360 release of Minecraft you are awarded a miniature clock wristwatch for your Xbox Live avatar to wear.
 * In Snapshot 12w34a you can place the clock in an item frame and it will continue to display the day-and-night cycles.