How something works refers to the electrical, mechanical, chemical, or physical properties and processes by which it does whatever it does. How something is used refers to the use to which the item is put.
A car works by internal combustion, the burning of fuel to make minor explosions to cause pistons to rise and fall and turn the wheels attached to an axel... and so forth. How it is used is as a method of transportation to get from one place to another.
It is basically possible for them to be approximately the same thing. A knife works via the process of applying pressure with a metal object in a rhythmic motion in order to cut through a softer object. That is basically how a knife is used as well as how it works.