Still have not played with it - I know I should start taking vendor trash tot eh alter for destruction so I can get my head around it.
You have three "things" that do "stuff" to magical items. You can only keep one of the abilities of the item your destroying.
EG: Litany of the Dead drops the +5 Dragon sword of Acid, which has these three abilities.
+5 Enhancement Bonus Acid Burst Dragon Bane
You can use the alter to extract one of the three above items creating a shard of "X" and destroying the other two in the process. Your green bag holds the shards and essences for crafting.
Once you get your recipe you add shards, essences, item, to make your own whatchamacallit. Each alter has recipe books and search feature so you can go there and type vampire and you'll get all the Vampiric recipes you can put on items.