Spirit Fusion is basically item combining. Most items you collect in the game can be combined into something else. The tabs in your menu that makes use of ‘Fusion’ are: Items, Equip, and Living.
To access the ‘Fusion’ menu open you menu and then press SHIFT(Keyboard) or Y (Gamepad) and a new menu will open.
You basically choose one item to place on the left card and then one item on the right card then you can combine those into some thing else.
You can view what the results will be of the fusion which is a huge plus for a system like this before you decide to fuse the two chosen items.
Once you reach and finish the ‘Tian Shan’ portion of the game the ‘Sprit Fusion’ changes, it now gives you an option to choose a reward from the East or West Continents when you combine two items, cards, equipment piece, etc.