A '''steel lump''' is the result from combining a 2:1 ratio of [[iron lump]] and a [[temperature|glowing hot]] piece of [[charcoal]] to harden the metal. That means for 0.50kg of charcoal you need about 1.00kg of iron lump.
As of [http://www.wurmonline.com/wiki/index.php?title=Wurm_Server_Release_History#111110_Successful_Epic_debugging this patch], steel items now take reduced damage on use. Recorded tests suggest 20-30% damage reduction . [http://wurmonline.com/forum/index.php?topic=66260.0 this This forum thread] outlines some player tests and the results so far.
As with other metals, using steel to create items means you need to use steel lumps to improve those items.