First appearing in Final Fantasy VII, Materia allowed you to enhance various weaponry and armor to give you the edge in battle or even enhance your crafting and gathering abilities. In Final Fantasy XIV: A Realm Reborn, it has made a comeback.
However, Materia usage isn't as straightforward as simply acquiring it and slotting it into any eligible armor. There are two steps to making and slotting Materia.
The first step is Materia Crafting, which allows you to actually make your own Materia from your items. Acquiring this skill is actually a part of your Main quest, no matter which class you are. It's a Level 19 quest that sends you into Central Thanalan to talk to a Goblin named Mutamix Bubblupots. After completing this quest, you'll have to ability to craft your own Materia.
Making Materia is relatively easy, since all it requires is your currently existing items. For that reason, it might be smart to hold onto older equipment instead of selling it right away. You'll know that an item is ready to be crafted into Materia if its Spiritbond is a 100% and the description states that item is "Convertible." To get a 100% Spiritbond, you just have to have that particular equipment on, and use it in the field enough until it reaches 100%.
Once the item is Spiritbonded to a 100%, all you have to do is Right-click on said item and choose Convert. That will craft a random Materia (usually based on the item itself). Also, depending on the level of the item, you'll end up with various Grades of Materia, ranging from Grade 1 to Grade 5. So how exactly can you put these bad boys to good use? That's slightly more complicated and actually takes a little bit of work.
Completing this quest and acquiring the skill, however, doesn't give you the ability to just slot Materia into any old weapon or piece of armor. You'll need to carefully look at each item's description to see what crafting class you'll need at what specific level to meld it. For example, Wands are made by Alchemists, which means if you want to meld a Materia into a Wand, you'll need to have an Alchemist at a certain level.
It goes a little deeper than that though. Aside from needing equipment with empty slots, the appropriate Crafting class level and the Materia you want to slot, you also need Carbonized Matter, which is used to affix the Materia into the item. Carbonized Matter comes in five levels based on the Materia you're slotting. A Grade 3 Materia, for example, requires a Grade 3 Carbonized Matter.
TL;DR
Materia Crafting
Materia Melding
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