It must have a Soul Crucible one blocks away from it only, or it will not draw souls from it.
The materials that are needed to construct the Altar of Souls is 4 Obsidian, 2 Ender Pearls and a Book of Shadows
To use it, you must first place atleast one Soul Crucible one block away from the Altar of Souls. When right-clicked (default) with a Soulkeeper or Essence Vessel with five or more souls in it. This will deposit five souls into the Soul Crucible. Right-click on the Altar of Souls and a GUI will open. An Iron Ingot, Book, or Wool of any kind but orange can then be deposited into the slot on the left. After clicking the "Imbue" that will then light up after placing the item. It will turn an Iron Ingot into a Livingmetal Ingot and Wool into Soulweave. Orange wool is likely to be unable to be changed because Soulweave is blue and orange is the opposite color of blue. Both Wool and Iron Ingots take five Souls to Imbue. It takes 100 Souls to "Attune" a book and make an Enchanted Book with a Soul-based enchantment.