Atmel studio 7 - my own libraries
You should create your library as a separate project: File->New->Project and select C or C++ static library:



Add your library modules in this project. When building, this will create lib{your_project_name}.a file (in Debug or Release folder) - your library object file you can use in your other projects.

Usually I include in the same solution both the library project and target project (just library project file, sure the library and it's files resides in single place):



ORDO is the library name.

Some check list:


Include the library file in Libraries folder (shown above)
Specify the path to the library *.a file for linker (Toolchain->AVR/GNU Linker->Libraries). Note that there should be different paths for Debug and Release configurations.
Specify the path for library include files (Toolchain->AVR/GNU C or C++ Compiler->Directories)
In some cases, F_CPU definition might be needed for library project too (same as in your project, under Symbols).
When changes are made in your library files, use Build solution (F7) when building, if not - you can use Build project (which will be faster).


Setting project dependencies shall also lead to rebuilding the library automatically when needed (not tested, I usually just hit F7 :).