[Ajogamer]

First, you need to have the alchemy spell, a cauldron, and the ingredients for the recipe. You also need to have learned the recipe, so it's listed in your "/recipes" list.

You first put the recipe ingredients in the cauldron, so for water of the wise, you'd put in 7 waters. Next, you close the cauldron, place it on the ground, then cast the alchemy spell on the cauldron. you then open the cauldron, and take out the item(s) you made.

Items made with alchemy will be unidentified at first, so either use the alchemy skill or cast the identify spell in order to identify what you've made.

Now about what alchemy's based on, making items with alchemy gives you mental experience. As your mental level goes up, your success rate and the amount of items created should both increase. Some recipes (The equipment ones, I believe) never fail, providing you know the recipe and used the correct ingredients.