A Red Gnome can be used on any item that requires less than 1 hour of building time,. This will reduce the progress bar above them, until you've used up 1 hour. And after that hour is used, the gnome disappears.
You can buy Instant Workers from the Market, or by merging 3 hammers together!
To use an Instant Worker, just drag them to the task you want them to work on. Tasks that are available should light up on the board when you start dragging the worker around.
Note: you can only use an Instant Worker once. Once you use him, he'll disappear as soon as he's done working.