After you have all the items, Double Click on the hammer in your inventory. Then choose the item you want to make. After that a box should pop up saying all the items needed to forge it.
To change the weapon your forging's element. You drop an elemental stone on that box(Rough Wind, Great Nature, Flame Heart, Mystic Frozen) and it will -attempt- to make it the element of the stone. Note, it can fail.. and you Can't use more then one element. Additionally you can add star crumbs to upgrade the shear attack power, you can add up to three of these (or an Elemental stone and two Star Crumbs).
Hope this adds more clearification.