Heels can be knit in several different ways, but one of the most common is using a heel flap and then "turning the heel" (see step 6).
To begin working the heel flap, knit the first 10 stitches of the round onto one needle. To make it easier to work with, slip the other 10 stitches onto one needle and allow them to hang while you work back and forth on the first 10 stitches.
The heel flap itself is a two-row repeat:
Row 1: (wrong side) Slip the first stitch purlwise with the yarn in front, purl the rest of the stitches.
Row 2: *Slip the first stitch purlwise with the yarn in back, knit the next stitch. Repeat from * across.
Repeat these two rows four more times, until you've worked 10 total rows, ending on the knit side.