Step 1: Recognise the Shape
The lines $y=|x|$ and $y=4-|x|$ form a square with vertices $(0,0)$, $(2,2)$, $(0,4)$, $(-2,2)$.
Step 2: Side Length
The side from $(0,0)$ to $(2,2)$ is $2\sqrt{2}$.
Step 3: Area
Area $=(2\sqrt{2})^{2}=8$ square units.
Final Answer:
The square formed has area 8.
\[ \boxed{\text{(B) }8} \]