Sandstone Blocks are found naturally-placed in the Underground Desertbiome. Sandstone blocks don't affect whether an area qualifies as an Underground Desert biome. The only qualification for such a biome's enemies to spawn is a naturally generated sandstone wall. Like Sand and Hardened Sand, it is a corruptable block in Hardmode, and has Corruption, Crimson, and Hallowed counterparts: Ebonsandstone, Crimsandstone, and Pearlsandstone respectively.
It can be crafted into Smooth Sandstone, which then can be crafted into various furniture items.
Even though Sandstone Blocks will not create an Underground Desert biome, its biome-specific counterparts will create and spread their respective biomes.