Emerald

An Emerald is an item dropped when Emerald Ore is mined or more commonly obtained through Trading with Villagers. It can also be found in Desert and Jungle Temples. The occurrence of their respective ore is very limited in the world in that there are fewer emerald than diamond.

As of Snapshot 12w21a, they can be used as a form of currency in exchanging items with villagers.

Usage
As above, Emeralds are a form of currency for exchanging items with villagers. Emeralds can be traded with villagers to obtain things such as 12 wool for 2 emeralds, and vice-versa. As of 12w22a, Emeralds can also be used to craft into an Emerald block, as you can see below. The Emerald block is only used for decoration, and as a way to compact emeralds

As a Crafting Material
As of Snapshot 12w21b, the only use for Emeralds is in exchanging them for items and vice versa. It can be mined from extremely rare Emerald Ore. Emerald ore can only be found in the 'Extreme Hills' and 'Extreme Hills Edge' biomes. To be able to trade with villagers, right-click them, and then a trade shows up. To trade Emeralds with Villagers, the player must place them into the Trading Menu's left slot in the amount requested above the slot. The player can then take the resulting item from the right slot. This applies conversely to obtaining Emeralds in trade. They can not be used to be crafted into  tools. However, Emerald Blocks can be made, similar to the other ore blocks, and used as a building material or storage method. The rarity of emeralds means that this is more practical in creative mode. Note: the shape of the emerald might come from terraria

History
In, when diamonds were added, they were called emerald in the code, this was changed to diamond the next day.

On May 21, 2012, Jeb released a screenshot of himself testing the trading system. At this time, what would become Emeralds were Rubies. When the snapshot was released, Jeb announced that he might include both emeralds and rubies.