What it is is a bar attached to the bridge of the guitar which, when depressed, lowers the pitch of the strings by raising the bridge. Away, where Kurt drops the strings as far as they go, raises them, and drops them again and again. However, dropping the pitch of the strings is only one use for the whammy bar, as it can be used to make exaggerated vibratos and other such noises. There is really not a hell of alot I can say about HOW to use this as it isn't a very complicated tool. You should just fool around with your own and get familiar with it and the noises it can make and soon you will be able to produce decent noise with it.
Pick scrapes are very underrated, as they seem to produce one kind of noise.
Actually, there are many things you can do with pick scrapes aside from just scraping the low E or A strings and making the same old usual sound. Or you could just scrape all the strings over the pickups, again, a technique well demonstrated by Sonic Youth. This is another method that must be exparimented with so that you can come up sounds that you like. Of course there are various other methods that Kurt used that I'm not going to get into, basically because my knowledge of feedback and noisemaking is very limited compared to his.