Fuel Pellets are a product made out of wood and other burnable things. They were added in 1.4.0 as part of the Useful Update. Fuel Pellets, are often tiny stick like things. They are meant primarily as an easier way to store your fuels so that they are more stackable and take up less chest space.
You can craft Fuel Pellets in a very simple manner. All you need to do is simply take any item that this mod has added as a fuel, and craft nine of it. Depending on the combined burn times of whatever fuel you are crafting, the amount of Fuel Pellets that are output will vary. Please note that you cannot craft differing fuels together to get Fuel Pellets, but you must have nine of the same fuel to craft them. Below is an example using nine dragons breath to get Fuel Pellets.