This allows you to transmute Spells or Equipment with Runes in order to make better spells or better equipment. The player will drag a spell, item or piece of equipment onto the empty slots to transmute (change) those into something different.
In order to make better magic spells, you will transmute 1 basic spell with 3 runes of a different type, or 2 basic spells with two different Rune types. The spells shown in the image are the basic Red spells. there are also Green and blue, each with 2 additional levels of power.
You can mix 4 small potions of the same type to make a new better potion.
You can also make new Equipment using the proper Runes. This will require 3 Runes of a different type and the equipment you wish to change.