Palette knives are used in the same way as you would in most painting mediums. The major difference with encaustic being- hot wax cools quickly and then becomes a solid; needless to say, this makes the wax stick to the knife. There is a similarity to other metal sculpting tools when it comes to using them; and as a specialized tool, they are limited to what they can offer.
Palette knives are not made well for scraping paint away either (see printmaking scrapers); they are designed more for addition, not subtraction (this doesn't mean that they can't be used for such techniques, just that there are better tools available). Remember hot tools keep wax from sticking to them, and this is never more important when using a palette knife to add paint to a surface.
For removing paint also read: Razor blades, Knives,Printmaking Scrapers, etc. and Carving Tools.
