Creosote Oil is used to preserve Wooden Ties against rot and decay. The particular properties of this oil derived from Coal or Wood helps to waterproof and protect wood against many forms of insects and bacteria that would otherwise destroy it quickly.
You can collect it in bottles, buckets, or cans. When you make wooden ties with a bottle you lose the bottle in the process, but a bottle is cheap to make using three Glass blocks in a "V" pattern.
Creosote Oil is obtained by cooking coal or wood in a Coke Oven. It is essentially a free byproduct of the process. You will need multiple Coke Ovens to produce it in quantity as it takes several minutes to produce and cannot be sped up. The only other way to make creosote oil is to cook coal or charcoal in a furnace, although this is turned off by default on servers.
Another way to collect Creosote Oil is to blast Coal Ore with the Super-Heat setting on a Mining Laser. This drops 2 Creosote Oil as it would when smelted.
Another method is cooking coal or charcoal in any furnace. As of Tekkit Classic 3.1.2 charocal yields one cresote oil and cooking coal yields two cresote oil. This is an easy alternative to using Coke Ovens.
Aside from crafting, Creosote Oil can also be found in dungeon chests, although it's very rare, (0.2 is the default in Tekkit 3.1.2).
To make Creosote Oil, burn coal inside a Furnace.
(NOTE: In Tekkit 3.1.3, Creosote Oil can ONLY be made in a Coke Oven)
(NOTE: Coke Oven GUIs have changed between Tekkit 3.1.2 and 3.1.3)
To extract Creosote Oil in a glass bottle, place the glass jar inside the oven. It will fill when it hits one notch and create the Creosote Oil in the glass jar. You can then remove them through wooden pipes attached to the side of the oven, however, it will also remove Coal Coke as well, unless you use a Advanced Wooden Transport Pipe.
To extract Creosote Oil as a liquid, place a waterproof transport pipe on the side and have it empty to a tank (for storage). However, you will NOT be able to remove the liquid with a bucket or glass bottle when it is in the tank. To solve this, hook waterproof pipes to the tank and move it to a liquid loader, fill up a minecart with a creosote tank. Move it to an unloader with glass bottle in it. Then you can extract the vials from the bottom of the unloader with wooden pipes.
Creosote Oil is used to craft Railbeds, which is used to make complex tracks (from Railcraft). Note that you will also require a Rolling Machine to make Rails in order to use the Railbeds effectively.