The toolbar is shown at the bottom of the screen and holds up to four profiles of nine actions that can be performed within the world of Space Engineers. Each action slot can be configured to one of five actions: activating specific blocks, activating groups of blocks, activating hand-held tools, placing blocks, or activating character animations.
Unlike many games that limit the toolbar to items already in the inventory, Space Engineer's toolbar is more like a blueprint library that allows the player to access any object in the game, even if it is not actually available to the player. Once the player activates a particular action slot, the game will attempt to use the item (if a tool or activatable block) or place the item (if a building block) and will inform the player if the requisite items are not found in the available inventory. In Creative Mode, all items are always available, and so blocks will always be placed regardless of inventory (unlike Survival Mode, blocks are placed fully formed, no construction needed).
It might seem counterintuitive at first, but you cannot take items directly from your inventory to the toolbar. The reason for this is that most of the items your character will carry are Components used to construct blocks, not the blocks themselves. Placing Steel Plate in your toolbar is worthless, since the game has no way of knowing if you want to build an Armor block, a Drill, or a Gatling Turret! See Building for more information.
The toolbar has four profiles that can each be configured as needed to minimize the amount of time spent in the toolbar configuration menu. Set up each profile as you like; perhaps one dedicated to armor blocks, one to ship blocks, one to station blocks, and one miscellaneous (or however you like). The four profiles can be navigated by default with the , and . keys (as in, < and > on the keyboard, going left and right respectively through the profile list). This can be changed under the "Tools/Weapons" section of the controls option menu.
A new set of four profiles is generated for each ship. This means that as soon as you start piloting a new ship, you'll find a clean slate of four fresh profiles that can be configured as needed for the role of that particular ship (don't worry, your avatar's toolbar will remain intact as soon as you exit the cockpit or, well, respawn). A construction ship might have profiles very similar to your avatar's construction toolbar profiles, whereas a combat ship might have profiles dedicated to complicated thruster setups.
To use any items placed in your toolbar, hit the corresponding key to that item (if it's in the first slot, press 1; the second, press 2, etc). The tenth slot is a dedicated empty slot that cannot be configured; this is useful for "resetting" any item selection. This can be accessed either by pressing 0 or ~.
Once you've hit your stride and no longer need to see what items are on your toolbar, you can press Tab to hide it and the rest of your HUD if you so desire.