Sludge produced by other MFR machines is piped in and processed, randomly producing Netherrack, Clay, Sand, Dirt or Soul Sand (in that order of rarity). The Sludge Boiler will output items to an adjacent chest or to pipes and will not work until you do so. You can also Left click with a bucket that has sludge in it to fill the Sludge Boiler by 1000mb.
Be careful as when the Sludge Boiler is running, you will suffer poison and hunger effects if you stand within three blocks of it. You can still access its GUI without poisoning if you stand out of the poisons range.
-It is a good idea to have your harvesters near by so you don't have to use extra material transporting the sludge to the Sludge boiler.
Beware though that sludge boiler's poison radiation on rare occasions can mutate trees in planters to huge trees destroying your leafes.