Simply put, pearls are formed by mollusks, invertebrates that often have an external shell that opens for eating or respiration. If some organic material or parasite enters the mollusk when the shell is open, it can injure the mantle tissue, also called the protective membrane. Therefore, this protective membrane deposits layers of three possible substances--the carbonate mineral aragonite, or aragonite and calcite, the combination of which is called nacre, which is not unlike the material that forms the shell, and this forms the pearl. Pearls come in numerous shapes, but naturally occurring pearls are rare.
Nowadays, pearls are formed by the interference of man in this process, through harvesting of what are known as cultured pearls. But, within the setting of Steinbeck's novella, they could only be found by divers, and they were a rare find. A large pearl such as that which Kino is able to dive for in such deep water and discover was very valuable, indeed. This is why it is alluded to as "The Pearl of the World" and it draws so much attention and envy: "The essence of pearl mixed with essence of men and a curious dark residue was precipitated."