All item building in Minecraft takes place in the crafting window. By combining items in specific orders, you can craft all kinds of tools and decorations. The inventory window has a small 2x2 grid that you can use to create very basic items.
The 2x2 grid has very limited applications, since you need a bigger crafting box to make any of the useful tools. By crafting a work bench, you gain access to a 3x3 grid.
To craft an item, you do not have to have the items in a specific spot on the grid as long as the correct pattern is displayed. Crafting recipies are not included in the game, so it can be difficult to figure out the patterns you need to place items in to create objects. The general rule of crafting is to place the objects in the order it would be visually constructed. For example, tools are constructed by placing two sticks for a handle, then wood, stone, or other materials on top.
This guide has a full list of craftable materials broken down by type. If you're a new player and want to learn how to play Minecraft, check out the blog section or the guides page for some helpful tips on how to get started in Minecraft.