The crafting skills Forging, Pharmacy, Cooking and Decoration, are increased by using the little workshops you set up inside your house. The higher your skills, the better items you can make. Even if you fail at making a recipe you won't loose your ingredients! You will still earn experience in the skill, so failing isn't really all that bad.
The Kitchen workshop can be purchased from Ivan when he is in town on the weekend. He has the Kitchen in stock on the first weekend of the season. The Kitchen, Refridgerator, Table, and Shelves are available in two sizes, but you can only buy the larger versions if you have upgraded your house.
The other three workshops are added to your house once you have upgraded. Talk to Neuman in town and he'll offer to do a house remodel for 200,000 G and 2000 pieces of lumber! It's not cheap, but in order to get the best gear in the game you'll have to pinch your pennies until you have the necessary funds.
The workshops can't be used to throw various items together and see what results appear. You must have specific recipies before you can manufacture an item. The recipe books can be purchased from Russell, and he'll offer different ones every day of the week.
Crafting with the workshops will use Rune Points!
You don't need a house upgrade in order to cook, but you will need to buy the Kitchen and the accompaning utensils from Ivan.
Leo has a limited supply of weapons and armor available, so anything better will have to be crafted by your own hands.
You can equip two accessories that will help you with element resistances, status affects, and even boost your own stats. Each decoration has different properties.
Instead of waddling back to Edward's clinic for some health care, you can make your own medicine at your house. It costs less money, and you can even develop potions that are better than anything available from Edward.
Many of the crafting recipes require ingredients that can only be found inside treasure chests left by defeated monsters.
To make something you simply have to walk up to one of your workshops and press the A button. The top screen will display the recipe you are working on (which is blank by default), and your rucksack will be on the bottom screen, along with an area where you can place the necessary items for the completed product.
If you press the Left Shoulder button on your DS, you will access all of the recipes you have purchased from Russell. Scrolling up and down the page will let you see an image of the finished product on the top screen, along with the items you need in order to make it. You will also see a percentage of how successful you'll be in making that item. Even if the percentage is low, each attempt at making the item will help to increase your skill level.
The recipes can have a maximum of 6 ingredient. The items needed for the creation come from the monsters you defeat, growing wild inside the cave, or food stuff produced on your own farm.