Crafting is the skill that you use to make equippable items like armor and weapons, and consumable items like potions and food. To begin crafting, you must find an appropriate crafting location.
Forges – these blacksmithing locations can be used to make all of the equippable gear. From helmets to armor to boots, if you can wear it, then you can make it here.
Labs – these alchemical tables are used to make any enchantments, as well as all alchemical consumables like potions, scrolls or figurines (which let you summon a creature that will fight for you). If you want to improve your gear or brew a potion, you need to find one of these labs.
Hearths – these cooking spots are used to make food and drink that can give you long-term benefits when you ingest them. Many rest areas will have hearths, so crafting of this sort can often be done “in the field”.
When you use the central object at these locations, such as the anvil at the forge, you will enter a crafting interface that displays all of your forge recipes, broken down into categories such as armor, weapons, boots, helmets, rings, etc. You pick a category and can see all of the recipes you know for that category. Each recipe has a set of ingredients needed to make its item (or items, as some recipes will make batches of items). Some recipes will have additional prerequisites, including requiring you or a companion to have a certain talent or ability or even skill at an appropriate level. Higher level recipes have more prerequisites and need rarer ingredients.
Most items don’t degrade over time. This means that boots, rings, helmets, gloves, amulets, cloaks, and belts are not worn down by use. However, weapons, shields, and armor (that is, chest armor) do have durability values and are worn down by use. Specifically, every attack with a weapon degrades that weapon by one unit, and armor and shields are similarly degraded when the wearer is attacked.
Items have lots of units of durability, and they do not suffer any negative effects until those units are completely gone. When an item has reached 25% of its maximum durability, it will become “worn” and appear that way in your inventory, but it will not behave any differently until the last unit of durability is lost. At that point, the item is “damaged” and the following effects will happen:
Weapons – damaged weapons do less damage and have less accuracy
Armor – damaged armor has lower damage thresholds and the wearer’s attack speed is slower
Shields – damaged shields lose part of their defense bonuses
Items can never become worse than “damaged”. They will not break or become more damaged. They just stay damaged until you have them fixed.