In order to deform an object with another object:
Select at least two objects. The last object selected will be the object that is used to deform every other object selected. Hit the "bind" button.
The tool has three options for deforming.
1: "Update Once" This is for modeling. If the deform object has changed by editing or modifiers like wave or cloth, the objects bound to the surface can be updated one time.
2: "Scene Update" The bound objects will update continuously with anything that triggers scene update.
3: "Frame Update" The bound objects will update every time the animation frame changes