In Crisis Core: Final Fantasy VII (FF7)
Materia fusion will unlock automatically in Chapter 3. There you can fuse the materia you own for the first time and create a new materia. However, the item slot is still locked at this point.
You can only unlock this from Chapter 5. To do this, you need to complete the 7-2-1 mission and get the Item Fusion Tome as a reward. Only then you can combine objects such as items and accessories into your materia fusion.
For each fusion you need Soldier Points (SP). You earn these by defeating monsters or opening chests. You can also exchange Materia for SP in the Materia menu. It is important that you still leave enough SP, because you need them to spin the DMW. If you have too little or none at all, it will no longer rotate.