There are two ways of crafting at the moment, through the forge, or combining potions in your inventory.

Two of the same potion can be crafted together to make a Greater Potion, greater potions are great to craft as they give you 3 times the stat increase than a normal potion.
To craft them together, drag the same type potion on top of the other.
Careful, crafting two greater potions together will create a vial of the same type, you must be ascended to consume the vial!

The Sacred Forge is used to craft very specific materials together in order to create or improve.

You can put a Sacred Essence into the bottom slot and a Rusted into the top slot to craft.

You can put a Legendary Essence into the bottom slot and a Shard into the top slot to craft.

Place a Spirit of the Past in the bottom of the forge, with sacred/legendary items on top to roll a random chance for another item of the same type.

Place a Godly-Remnant in the bottom of the forge, with a Relic item on the top to upgrade the item to an Exiled Items.