You need to have the items in your inventory as well need some materials for it.
When you play Skyrim the first time will you get sort of a tutorial in Riverwood by the local smith. You should give this a try.
You can turn pelts into leather and leather into leather strips at the tanning rack. You then use the leather and leather strips at the forge to make leather armor (armor, helmet, bracers and boots). At the workbench can you improve these but need again some leather. Same with making weapons and grinding weapons.
Grindstones are however somewhat special as they do require material in order to improve a weapon and are not just simple grindstones as one would first believe.
Iron and steel items need iron and steel ingots, and higher quality stuff may need several different ingots and other stuff before you can make them.