According to Dictionary.com, a center punch is a tool used for making shallow indentations in metal, typically to mark the center of a point for drilling on metal. It is used for this purpose because holes that are not started in a recess tend to wander, thus damaging the metal.
Since a center punch is just a hard metal rod featuring a tip that angles at 90 degrees, a hammer is also necessary. The punch is centered where the hole is needed, and the base is struck with the hammer to create the guide mark for the drill to form a perfectly placed hole. Automatic center punches are also available that eliminate the need for a hammer.