Crafting is the method of creating items in the game. You can open up the Crafting Guide by pressing the C key on your keyboard. Items that you can craft (Have all the items in the recipe) are clear, where as items you can't craft are grayed out. Note that some items have Special requirements, such as requiring you to be near a Shrine or the Dragonstone.
You can either craft 1 item by clicking the craft button or hold shift and click to craft 10 items at a time. There is a queue that lets you queue up as many items as you want. When you run out of materials, click on another item or try to leave the screen, the crafting process will be stopped.