Actual knives can be used and most certainly are, but the hardness of the material is such that they are not the ideal tool, generally.
Then the design is generally drawn or laid out on that, and saws, files or machine tools are used to work the wax into a finished product.
The wax is easily taken to a fine finish in the end using a bit of nylon stocking or steel wool.
Generally they fall into three main types, soft, hard and injection waxes.
They can be cut or carved with knives, files and rotary or machine tools.