Crafting has now been fully implemented. However there are still more recipes to be added.
The current crafting categories are;
In order to smith you need to find either a forge, or an Anvil.
After finding this (usually in Blacksmiths shops, however they can be found in caves). You will need towalk up to it and press Enter. This will then open the Smithing menu.
When you are in this menu, you will be able to choose which item you wish to craft. (You will need to find/buy books to learn more recipes.) If you have the right resources, you will be able to create your weapon/armor. However, it does not have 100% chance of success. if it does not succeed, you will receive some ruined resources. In some cases this will be malformed Iron.
Runesmithing is unique to, Dwarfen Runesmiths. In order to do this you will need to locate, a magical Anvil. You can recognise these, by the glowing runes, in the floor around them. Activating them (pressing enter whilst touching), will bring up the Runesmithing menu.
This menu operates the same as the Smithing menu, with the added exception of being able to, create magic weapons. However in order to do this, you will need to have crafted the weapon you wish to enchant, and have a rune, with the enchantment you want. This type of smithing ALWAYS has a 100% success rate.
In order to create potions, you will need to find a Cauldron. (Usually located in Alchemists shops, however they can be found in caves.) To open the Alchemy menu, you open it the same way as Runesmithing, and Smithing. When you are in the menu, you can choose to create a potion, (as long as you know the recipe), this has a higher success chance than Smithing, however it requires rarer ingredients, such as Daemon Essence, and Dantine Powder.