The scales of the shadow beasts can be used to make powerful armor.
Demonite is made when the Eater Of Worlds spreads corruption by eating normal soil and rocks and processing them into their corrupt forms. Demonite is a regular metal that's been eaten and passed by the Eater. These two types of items are found in the Eaters stomach.
Maxx! Don’t forget to harvest the Eater of World‘s scales and stones before we leave the Corruption!
-Cyril, comic 205