Clay

Clay is a block that was introduced in version 1.0.11 (Seecret Friday Update 6) on July 25th 2010. It uses a light-blue/gray recolor of the Sand texture.

Clay can be found on the surface in groups of varying number by a body of Water usually surrounded by Sand. It is usually exposed, but is sometimes found under sand or water. It is uncommon, but is easier to find than other "rare" blocks (like Gold) due to the fact that one simply needs to explore surface-level shorelines to find it. It is believed to be more common on the shorelines of desert biomes, as they tend to more commonly generate near sand. The block seems to have been a lot less common before the Halloween Update.

It can be mined with any type of tool, but Shovels are the optimal choice. Destroying clay blocks will yield 4 balls of Clay each, which can be crafted back into a clay block or smelted into brick.

If you're having trouble seeing if a block is clay or not, clay sounds like dirt and mines much faster than stone (especially with a shovel).

Trivia

 * Clay can actually be bright red in nature, not just gray.
 * Clay can also be found a few meters under the soil in real life.
 * Clay can be easily found in the middle of an expanse of water. When sand is on the surface or a block under, there is a chance that clay is there, too. Use a boat to find these areas.