Compass

Compasses were added in Seecret Friday Update 9 on September 10, 2010. They are created by using one redstone dust and four iron ingots (see formation below). The compass needle points towards your spawn-point at all times, even in your inventory screen, chests, lying on the floor or while holding it in your hand. When the compass needle is pointing straight "up" relative to the player, the player's spawn point is straight forward. Very specifically, your spawn point is the center of the block you spawn on, while the compass points to its north-east corner.

If brought into The Nether the compass will wildly point in random directions, making it entirely useless for navigation.

You do not actually have to build a compass to see which direction your spawn is in. Just place the necessary components into their places on a crafting bench and it will point towards your spawn. This can save you some iron and redstone.

If your home is near your spawn, the compass is very useful, especially if you are planning a long boat trip, so you can find your way back. Using a map editor to change the position of your spawn point to your homestead makes this even easier.

Trivia

 * The compass, along with the Clock and the Fishing Rod, is one of the few tools you can stack.