You can't do anything with them.... yet, in later versions of beta notch has confirmed you will be able to craft them into something, what? I dont know but just hold onto them for now =)
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Slime balls are only dropped from slimes. Slimes are green, gelatinous and very rare cubes, found far below the ground level.
You can find slimes in flat areas at lease 6-7 blocks wide. Or in slime dungeons.
There are 3 different sizes of slimes in minecraft. Big , medium ,and small.
step 1 find slimes underground (hint: look DEEP underground) Step 2 make the area where you found slimes easly accseable step 3 kill all the slimes step 4 leave and then later come back to kill more slimes step 5 ?????? step 6 profit
slimes spawn only on slime chunks