All types of materials can be used for combining, except legendary materials. Combining gives you a material of better quality (type). For example, by combining four simple materials, you get one usual material.

To start combining, go to the Materials tab in the Workshop. There are four slots on the left side of the window that should be filled with materials of the same type. The higher-level material you'll get as a result of the combining process will be shown in the central slot.

If you have eight or more units of one material of the same type, you can open the additional bulk combination window by clicking the "Combine" button. Here, you can combine an unlimited number of materials.

For example, if you have 12 units of Usual Steel, you get 3 units of Unusual Steel for a single combining process. 

In addition, you can change the number of materials for bulk combination by using the special slider at the bottom of the window.

Combining happens instantly.