"Magnus magnes ipse est globus terrestris. [The whole Earth is a magnet]"
William Gilbert, physician and natural philosopher
The Chinese discovered the orientating effect of magnetite, a magnetic ore known as lodestone (or leading stone), as early as the fourth century B.C.E. and the earliest compasses were used for quasi-magical purposes. They consisted of a piece of lodestone floating on a stick in a bowl of water, which swung around so that it. always pointed in a consistent direction. It was another thousand years before they were used for navigation. Previously navigators in the northern hemisphere had used the North Star to indicate direction, and followed earlier maps, but the compass, which aligned with the North Star, was more useful because it could be used in all conditions.
Magnetic compasses work in this way because molten iron in the center of the Earth acts as a magnetic core, as if it were a giant bar magnet, and causes the needle to set parallel to the north-south axis of the globe. It was only realized later that the directions of the magnetic north and geographical north (Earth's axis) were not parallel to each other and varied by about 12 degrees.
It was later discovered that iron or steel needles stroked by a lodestone became magnetized and also lined up in a north-south direction. In 1745 Gowin Knight, an English inventor, developed a method of magnetizing steel permanently.
