The 'Beasts & Exploration' DLC added crafting as a core game mechanic.[1] Before that, crafting was accomplished through events. The new system incorporates the old Tailorevent which has been removed from the game in favor of a new recipe.
Crafting is mostly conducted at the taxidermist.
To successfully craft an item, certain ingredients and a certain amount of Crowns are necessary. Recipes are automatically displayed if the necessary requirements are met or once they've been used. Some ingredients and even items (paint) can be bought or found in locations. Most components however are looted on dead monsters, primarily beasts (trophies). Higher value items usually require rare ingredients and more Crowns to craft.
(Hint: The component name can be searched (Ctrl + F shortcut), and will show up as a text over the ingredient icon. Positioning mouse cursor over an ingredient, till its shape is changed to a sword, will provide the same information and also opponent's name in parentheses. The trophies page has a similar feature, which allows opening an opponent or a crafted item page upon clicking a corresponding icon.)
In every battle completely absorbs the damage (status effects and fatigue still apply) of a first hit that doesn't completely ignore armor (e.g. doesn't work against daggers' puncture), −2
Giant Skull and Bones / Lindwurm Bones Giant Skull and Bones