Cragwood Logs can be found lying/laying on the ground in Forests and Woodlands, under Wildwood-trees in the Jungle, under Elderwood-trees in the Taiga and even in or under water in Grassland-biomes on the river-bed or on the ground of lakes (that often consists of Mud).
Cragwood Logs can also be used for crafting recipes that will accept any kind of Wood or Log, like (as of R26 in December 2015):
Cragwood Logs are quite common in Jungles too. Fire is able to spread onto other flammable materials and such a wooden house or whole forest can burn down. You cannot extinguish such a fire (currently, as of R27 in January 2016) except by creating aisles wide enough so flames won't be able to leap over or by claiming the area and disabling the fire spread option. Players who have bought the "Pro" update can disable the fire spread option for their whole world.