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Generally, referring to someone as just a "tool" (with no qualifiers) is referring to definition 9 as seen at http://dictionary.reference.com/browse/tool?s=t:

Slang: Vulgar Penis.

So it's about the same as calling them a jerk, a dickhead, and so forth.

Referring to them as "a tool of X", on the other hand, does have the implication that you refer to: they are a loyal instrument that can be counted on to do X's bidding and to act in X's interests at all times.

You're asking about two separate definitions.

He's a total tool can mean a prick/jerk/ass/dork/nerd and some other offensive words that I'll leave to your imagination. The meaning would depend on the speaker and what the person does that makes him a tool. It's a pejorative generally reserved for males.

On the other hand, you're correct regarding He is a tool of IBM. It does mean that he's blindly loyal, but it can also mean that he's a prop or a puppet being used by IBM, suggesting he's either under control by or manipulated by IBM. In other words, it's a metaphor suggesting he is used by IBM much like one might use a wrench to tighten a bolt.

I am not saying that tool cannot be used for being a jerk or prick but we would commonly use it instead of dumbass or someone who is lacking intelligence.

Urban dictionary:

One who lacks the mental capacity to know he is being used. A fool. A cretin. Characterized by low intelligence and/or self-steem.

I like watch Scrubs tvshow here is how the JD, who is one of the main characters, talking with nerd doctor and making up in his head that short conversation, might be helpful.

For some reason when I saw your question that episode popped up in my mind momentarily.

Here is even better cut up.

There is a generalization of the definition that someone "is a tool (in whatever context)".
Based on my experience, this defines someone that is acting with great ignorance as to their purpose (in a situation or generally), commonly on behalf of another party in a grander scheme.
A correlation is to a tool itself, such as a screwdriver, which by itself has no specific purpose other than to compliment some greater goal, otherwise unaware of its role in the larger task.
Thus a person referred to generally "as a tool" reflects their base impulses (such as an animal or inanimate object) and inability to understand higher level purposes.
In a specific context such as being used "as a tool by (some party)", reflects the individual's lack of understanding of their role (much like a puppet) in a grander scheme.

I always thought it was rhyming slang for 'fool'.

None of the answers here are getting the term "tool" right when it is applied to a man. When a guy is a "tool" he is far more than a jerk. People who cut you off in traffic are jerks. They're not tools. When girls at my university called a certain complex a "tool-shed," and the guys who lived there "complete tools," what they meant is much closer to "selfish bastards" than "jerk". They mean the kind of guys who run around thinking only about themselves, their image, their reputations, and who see women as ornaments and objects of self-adornment and personal pleasure. They see the world and the people around them in terms of what they can provide to them personally. They are manipulative, prey on naive (and often much younger) girls, use psychological games to win favor and attention and to feed a cycle of dependency that they hope will keep their girl(s) coming back. Worst of all, they are unabashed about what they do. And while this isn't necessarily true, they're often gym rats and get together with their bros and share con-man/pick-up artist techniques while they work out their arms, shoulders, and chests (leaving twig-like legs). When they work out alone, they spend half their time scoping out chicks. Girls who fall for tools fall into a venus flytrap, and if they get out, they never forget.

When a girl says "he was a complete tool," that's what she means.