Wikia

A Meteorite is an unnatural Biome that can appear on the surface of the world during the night (50% chance) after destroying a Shadow Orb, or rarely on a random night, which can only be mined with a Gold Pickaxe or better, or Dynamite. There will be an announcement at the bottom-left of the screen when a new meteor has fallen that says: A meteorite has landed! If the player destroys a Shadow Orb a Meteorite may land, but not straight away. It could take up to a few ingame days. Meteorites crash-land into the ground (though this event always occurs off-screen), causing a crater lined with Meteorite [Meteorites that hit sky Bridges give extremely few ores] . A single Meteorite can yield a little over 350 Meteorite Ore (enough for about 85 bars), though this number can vary. Meteorite can rarely be found in Gold Chest. In abundance, this can be used to make Meteor Armor, tools, and Phaseblades.

Meteorite blocks cause damage to the player when touched, but the meteorite itself is safe to pick up once mined. Meteorite block damage is eliminated by wearing an Obsidian Skull, Obsidian Shield, Obsidian Horseshoe or using Obsidian Skin Potion. With care, it can be mined without these defenses by placing other block types for the player to stand on as they mine.

When approaching a Meteorite crash site, Meteor Heads will spawn in an attempt to hinder your excavation of the Meteorite, and the game's music will change to the Underworld theme. Upon mining away the vast majority of the meteor (when the number of Meteorite is below 50), the Meteor Heads will stop spawning, indicated by the music returning to the general overworld theme. Strangely enough, Meteor Heads never spawn in the actual meteorite when you're close to it, but come from east, west, above and below, where there isn't usually a meteor.

Notes

Meteorites replace existing blocks in the area of impact, rather than delivering new blocks, and will impact on the first blocks it encounters at the highest possible altitude. If it impacts on a Sky Bridge, or other low-density block area, relatively few Meteorite blocks will be produced. Since Meteorites are a rare occurrence, and Meteorite is a valuable commodity, it may be worth the time to destroy any Sky Bridges you may have built prior to destroying a Shadow Orb, to ensure you get the full yield of Meteorite. Note that a Sky Bridge made of Inactive Stones is ignored. [Tested once. http://tinypic.com/r/vd0m68/5 ]
Meteor Heads have a 2% chance of dropping Meteorite.
Meteorites can fall anywhere on a map, which makes locating them on large worlds a significant endeavor. They can fall on floating islands, dungeons, on or in chasms, and in the ocean. It is even possible for Meteorites to fall right next to, or on NPC settlements.
If a Meteorite falls on a Chasm, the Chasm will not become plugged up because the meteor is actually just a translation of existing blocks rather than a new lump of blocks.
to protect your house, NPC settlements or any other area from being destroyed by a meteorite, you can make an 'umbrella' over the area. if you wish to still harvest meteorite from any meteor that lands, you'll have to make the 'umbrella' much thicker; around 10 blocks thick would work, but is very costly in terms of resources. a stack of stone would make an umbrella about 25 blocks long.
The Vilethorn is useful against the meteor heads because in a single use, it deals enough damage to successfully destroy it. You can also use it through blocks before they have the chance to get to you.

Tips

Dynamite is a very useful mining tool as it is quite powerful and can help excavate the meteor with a couple of simple explosions. Sticky Bombs can also be used to mine Meteorite, as they stick to blocks, letting you position explosions.
A strategy for dealing with Meteor Heads early to mid game: If you have 10 of the same kind of gem, try to mine 80 pieces of Meteorite (enough for 20 bars), and craft a Phaseblade. With a Phaseblade, dealing with the Meteor Heads becomes much easier and should allow you to mine the entire area with few problems.
With proper positioning, Meteor Heads can be repelled by your Pickaxe as you mine.
If you wish to spawn Meteor Heads to gain their drops, place 50 blocks of Meteorite in close proximity, such as in a 7x7 box with one additional block extended (so you can quickly end the spawning when needed).

Shadow Orbs Broken	Chance for x meteorites to spawn					Total Chance
Shadow Orbs Broken	1	2	3	4	5	Total Chance
1 Orb	50%	0%	0%	0%	0%	50%
2 Orbs	50%	25%	0%	0%	0%	75%
3 Orbs	50%	25%	12.5%	0%	0%	87.5%
4 Orbs	50%	25%	12.5%	6.25%	0%	93.75%
5 Orbs	50%	25%	12.5%	6.25%	3.125%	96.875%

Trivia

The amount of meteorite needed to spawn Meteor Heads, 50 blocks, sells for exactly one gold. However, you'd be better off with the bars because they seem to fetch more.