They are littered all over the player's farm in the beginning of the game. They can be cleared by destroying them with the hammer or (in the case of the small stones) be used as fencing. Please note, that while you can use small stones as fencing materials, it will not protect your livestock from Wild Dogs should you leave them outside overnight. While the player can't jump over the stones, they never have to be replaced if used as fencing; unlike lumber, which can get weathered down and broken over time.