If you are referring to the chisel mod, you right click the chisel, and a gui should open up where you may place the block you wish to chisel. Most blocks should work, but then again a lot of mods aren't compatible with it.
I made the chisel with stone and iron. Stick on the left and stone/iron in the middle. It won't work when I left click. It only breaks them into small blocks like mac said. Which chisel do I need to craft.
The Chisel 2 chisels are the ones you want. They're crafted with a stick and an iron ingot diagonally. You can then right click with it to open a GUI, with a slot on the left for blocks. The other slots show what you can make. There is also a diamond variant of this chisel. Chiseling stacks in one go by shift-clicking only uses one durability on the chisel, btw.
You are also using the "Chisel & Bits" chisel, intended for "sculpting" blocks into heretofore impossible shapes, embed bits of a different color into stock blocks, etc. You want the other one, I want to say the mod is "Chisel" but I may be wrong, whose sole purpose is strictly changing the "skin" of the block into another pre-defined look.