Key to the formation of any steel is the conversion of iron oxide, into iron. Iron is not found in its elemental state due to free oxygen in the atmosphere (at least since the evolution of cyanobacteria some 3.8 billion years ago), so some method must be used to remove the oxygen again and return the iron to a pure state. The most basic way to do this is to heat it in the presense of carbon, which will then combine with the oxygen to form carbon dioxide, leaving pure iron. Luckily one common source of carbon is charcoal which happens to also burn with enough heat to cause the reaction to occur.
However this process also leaves the resulting iron with a very high carbon content, often 4 to 5%. In this condition it is rather brittle, and not considered steel, but rather pig iron. Some method must be used to remove some of the carbon content, as well as other common impurities from the original ore, in order to produce steel.
The first form of crucible steel was wootz, developed in India some time around 300 AD. In this system the iron was mixed with glass and then slowly heated and then cooled. As the mixture cooled the glass would bond to impurities in the steel and then float to the surface, leaving the steel considerably more pure. Wootz was widely exported throughout the Middle East, where it was combined with a local production technique around 1000 AD to produce Damascus steel, famed throughout the world.
As early as the 17th century, Europeans knew of India's ability to make crucible steel from reports brought back by several travellers who had observed the process at several places in southern India. Several attempts were made to import the process, but failed because the exact technique remained a mystery. Studies of wootz were made in an attempt to understand its secrets, including a major effort by the famous scientist, Michael Faraday, son of a blacksmith. Working with a local cutlery manufacturer he wrongly concluded that it was the addition of aluminium oxide and silica from the glass that gave wootz its unique properties.
Meanwhile a new crucible technique was developed in England by Benjamin Huntsman, a clockmaker in search of a better steel for clock springs. In 1740 he moved to Sheffield, and after years of experimenting in secret he perfected his process. Huntsman's system used a coke-fired furnace capable of reaching 1600°, into which ten or twelve clay crucibles, each holding about 15kg of iron, were placed. When the pots are at a white heat they are charged with blister steel broken into lumps of about ½ kg. The pots are removed after about 3 hours in the furnace, impurities skimmed off, and the molten steel poured into ingots.
Before the introduction of Huntsman's technique, steel production had been based on using the unusually pure iron from Sweden, packed into stone boxes with charcoal and heated in a furnace for an entire week. In 1740, Sheffield produced about 200 tonnes of steel per year based on this older system. The introduction of Huntsman's techniqued changed this radically; one hundred years later the amount had risen to over 80,000 tonnes per year - almost half of Europe's total production. This discovery enabled Sheffield to develop from a small township into one of Europe's leading industrial cities.
Another form of crucible steel was developed in 1837 by the Russian engineer, Pavel Anosov. His technique relied less on the heating and cooling, and more on the quenching process of rapidly cooling the molten steel when the right crystal structure had formed within. He called his steel bulat; its secret died with him.
Cruicible steels remained the world's best, although very expensive, for some time. The introduction of the Bessemer process replaced it outright however, able to produce steel of similar (or better) quality for a fraction of the time and cost.