Mindreading is done during conversations - if the person you're talking to is mindreadable, there will be a 'mindread' button on the left of the conversation text (where the 'trade' button also sometimes appears). Each character can generally only be mindread once, after that the button disappears.
You don't need any extra points in mindread - mindread uses up XP, and spending points in mindread simply reduces the ammount of XP it uses (until it's eventually zero). It does not in any way change the effectiveness of mindreading, even though the tips in the game imply that it does. So you read the same thoughts regardless of whether your mindreading is 1/5 or 15/15.
You can find a discussion about how many points to spend on mindread here:
http://www.larian.com/forums/ubbthreads.php?ubb=showflat&Board=51&Number=433387Hope that helps!
