Place the cauldron from the witch/warlock's inventory somewhere on the lot. When you click on it, the option to make reagents should be there. The reagents are like ingredients. You'll get an animation that looks like this:
(evil witch)
(good witch in the top picture)
The reagents (or spell ingredients) will then appear in your sim's inventory. When you have a look at the spell book it should tell you which and how many reagents you need to cast particular spells.