The Powerstone can be found in rare stronghold-like structures spawning across the Abyssal Wasteland. As those structures are very rare, one can use Powerstone Trackers to locate them; the Trackers are used in a similar manner to Eyes of Ender.
One can combine the Powerstone with a Transmutation Gem and a Eye of the Abyss to upgrade the Gateway Key MK1 into Asorah's Dreaded Gateway Key. The ritual must be performed in the Abyssal Wasteland, requires a sacrifice and costs 10000 PE.
The Powerstone drops itself when mined with a Refined Coralium Pickaxe or above. Otherwise, it drops nothing.