According to dictionary.com, a tool (as a noun) is: "A device, such as a saw, used to perform or facilitate manual or mechanical work," or "something regarded as necessary to the carrying out of one's occupation or profession," or even, "a person used to carry out the designs of another; a dupe."
The last definition is generally how the term is used today when referring to or defining someone else. For example, "She's using him and he doesn't even know. What a tool." Not knowing is the key. What separates a tool from someone who's just good at following directions is that the person doesn't realize (or doesn't care) that they are being used.
Referring to someone as a tool was probably appropriated as an abbreviation of the phrase "tool of the man" ("the man" being someone very corporate or having lots of power). A tool of the man is used to execute his or her (yes, "the man" can be a woman) dirty deeds.
According to Wikipedia, the slang usage of the word tool became popular in the 1990's. Its usage even seeped into late night television. In one particular skit, Jimmy Fallon dressed up as Carson Daly, a popular MTV VJ in the late '90s, and referred to himself as being a "massive tool."
A tool can also be someone who just seems lame or is completely unoriginal. They are so used to conforming that they don't seem like they can think for themselves or think independently from what's popular.
Tools have also been accused of trying too hard--expelling way too much effort in an attempt to fit in or join the mainstream or non-mainstream (whichever the case may be). Thus, sometimes also being labeled a wannabe or poser.
Common derivatives of the word tool are: toolbox (generally meaning that this person is an extreme tool) or toolish (which means that someone is acting like a tool or in a tool-like manner).
