The "recording studio" (as opposed to "live play") has a bunch of options but the most important two (well, the ones discussed here) are the "pattern editor" and the "edit song" mode.
In the "pattern editor" mode, well, you can edit drum patterns at your heart's content.
To edit patterns, press the directional pad up/down to highlight the "edit" option. Then, press the left/right directional pad to cycle through the pattern spots. Press the fire button to enter the name, the number of bars, the number of beats per bar, the quantization (how many strokes you can have per beat) and the number of beats per minute. Apparently you need at least 2 bars per pattern.
You are then taken to the actual drum sequencer. For each step, you may enter up to 3 drum sounds: 1 is open hi-hat, 2 is cymbal, 3 is some kind of pipe, 4 is hand-clap, 5 is low tom, 6 is high tom, 7 is the snare and 8 is the bass drum. To cycle through the options at the top ("exit", "edit", "record" and "tempo"), press the up/down directional pad. If you make a mistake picking the wrong drum sound, well, you just shift press the drum sound key of the drum you want to get rid of.
In the "edit song" control panel, you string together the patterns that you have defined.
Highlight the "edit song" option in the "recording studio" screen and press the directional pad left/right to go up/down the list of songs. Once at the right spot, press fire and give a name to your song and press return to get to the actual song making control panel.
Highlight the "pattern" option and then cycle through the available patterns with the left/right directional pad. If you want to repeat a pattern (default is 1, played once), highlight "repeat" and then press the left/right directional pad to get to the number of plays you want. The tempo may also be changed in a similar manner for each pattern. Once you have a bunch of patterns out there, you can highlight the "stop" option to cycle through the selected patterns with the left/right directional pad (in case you need to change the pattern or its attributes).
Anytime you play a pattern or song, press (more exactly, strike) PgUp (on a pc emulated C64 like ccs64) to get out and go back to editing.
Little video I made showing the pattern and song editor. Only showing pattern 00 being made but the song has actually 3 patterns (00, 01 and 02).