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Ah, so you have a Lumber Shack and *not* a Lumber Mill? In that case, you need to build a Lumber Mill. The Lumber Shack only harvests the wood, the Lumber Mill is needed to refine the wood into boards. :)
It's under Refining on the second build category page. :)
I think it's under "Refining" buildings?
.. and I'm in the middle of rewriting the entire sprite generator right now too. >:)
I have upgraded both to level 2.
There is no option to build a lumber mill.
I tried to build a house but it requires boards.
Not sure where to go from here - the game is needlessly obtuse.
Scroll the menu with your mouse wheel or with the arrows (top/bottom).
Also keep in mind, this was a very old post. You now also need to set production on the left hand side once the Lumber Mill is built (Click on it, and increase the "make" or "maintain" values on the left GUI)