Creation is one of the major ways of obtaining items, along with buying them and finding them in the Thirteen Towers. The creation menu can be accessed by talking to Mavda. By fusing together multiple materials, you are able to create a new item, which may be rarer. There are usually multiple methods of creating any particular item. Not all items can be created, however, especially not the extremely common ones. Only a few gifts can be created.
There are two ways to choose which item to create. You can either "Choose an item to create" or "Choose a material to create with". Once you have chosen the item you wish to create, you may choose from which Method you want to use, which shows you what is required for each method.
When you're talking to her, Mavda will sometimes mention that the old man, the bundle on her back, uses his mouth to fuse the items and create the items.