Obsidian is a unique pre-Hardmode ore which is created when Water and Lava collide, at which point it forms placed blocks of Obsidian which can be mined and collected. Though Obsidian is considered an ore and is gathered similarly, it has no bar form of its own (although it is used to craft Hellstone Bars). Mining Obsidian requires a pickaxe with at least 65% pickaxe power (the Nightmare Pickaxe and its counterpart, the Deathbringer Pickaxe, are the weakest pickaxes able to do so). If the player lacks a viable pickaxe, Explosives can also be used.
Obsidian is not destroyed by Lava, despite being of White Rarity.
Obsidian is fairly rare naturally and will usually require player intervention to spawn.
A good way to rapidly acquire Obsidian with little effort is to find or create a large pool of water on top of a similar-sized pool of lava, mine through the Obsidian layer to create a tunnel straight down into the deep end of the lava, then mine a channel through the wall of the tunnel. Water will fill the channel and come into contact with the lava from below, causing more Obsidian to be generated at the block that was just mined. This will keep generating Obsidian until either the water drains completely or the lava drains to the level of the channel.
Another good way to easily farm Obsidian is to use Iron Bars to make 20 or so Empty Buckets, fill them all at once in a water pool, then find a convenient lava pool to empty the Water Buckets into.
Obsidian in real life is cooled volcanic glass. It is a very brittle substance that chips easily.