SpellCrafting is the ability to create magics that can be used to affix properties to an item. The system uses two types of jewels, Spellcrafting Jewels and Magic Jewels. The former provide for a specific property to be affixed to an item (i.e., faster casting). The latter provide the charges that affix one of the Spellcrafting properties to an item. Spellcraft Jewels are added to a Book of Spellcrafting, just like scrolls with a spellbook, by dropping them onto the book. There are 50 different Spellcraft Jewels, each with a property that it can affix to items. Magic Jewels are required to affix a property to an item and can be kept in a players backpack or dropped on the book as charges.
Spellcraft is based upon two primary skills: Inscription and Alchemy, These each have a total of 200 without power scrolls and a max total of 240 with power scrolls. So the most powerful crafts are applied by those with 120 inscription or better and 120 alchemy or better. These are capped by spellcrafting to ensure balance is retained. Spellcrafting also has a few more limitations, such as the number of modifiers which at the time of writting is capped at 10. Now while these seem like limitations, there are some modifiers there that allow for some very powerful weapons and armors.
You can find the guardians of the magics that will have a chance to drop a book/jewels/magic jewels on lots of dungeons, its up to you to explore and find em.