Mallet clears a piece or an obstacle on the tile you hit. Rainbow Mallet removes all drops that match the color of the drop you hit. Using them doesn’t cost you a move.
To use them, you need to tap the Mallet icon and tap on the tile you want to use it on. If you accidentally tap on them and don’t want to use them, you can simply tap on an empty space outside of the board.
You can't collect a Smoothie by hitting on the tray with Mallet. You can, however, hit the matching colored drops next to the tray to collect Smoothies.
Similarly, you can't collect Coffee by hitting on it with Mallet, but you can use the Mallet to remove pieces under it.
With the Rainbow Mallet you can hit the drops with placemat underneath to cover all the same colored tiles with placemat.