In crafting, you must first know the recipe of what you're trying to craft, have the necessary materials in your Material Tanks for you to extract, and then place the ingredients into the Cauldron in the correct order. If done correctly, you will create a new item that can be sold in your shoppe or given to your champion.
To use the grinder, walk up to it with the items active in your hand and press the right mouse button. This will immediately pulverize the item, and turn it into raw liquid materials. These raw materials are then stored in the material tanks connected to the grinder.
Each item you pulverize outputs a different amount of raw materials. For example, magical items will output more Liquid Mirr, while wooden items output more Liquid Wood. All six raw materials are necessary in creating new items in the cauldron.