For equity and commodities the application is as follows. The first step is to trace the evolution of the option's key underlying variable(s), starting with today's spot price, such that this process is consistent with its volatility; log-normal Brownian motion with constant volatility is usually assumed. The next step is to value the option recursively: stepping backwards from the final time-step, where we have exercise value at each node; and applying risk neutral valuation at each earlier node, where option value is the probability-weighted present value of the up- and down-nodes in the later time-step. See for more detail, as well as for logic and formulae derivation.