Like the game hints said, you can combine potions if you have at least 1 point in the Alchemy skill. Red + Blue = White restoration potion, Yellow + Red = Orange strength potion, etc. Also, you can combine empty flasks with herbs on the ground if you have more than 2 points in the Alchemy skill to produce various potions.
As far as I know there are only very specific non-potion items you can combine, depending on where you are in the game. They are also usually quest-related. For example, in the Duke's castle, you must combine items in order to complete a dishwashing quest. In the Council of Seven, you must combine the colored stones with the scrying devices in order to see what various prospective Council Members are doing.
There are several other places where you must drag and drop items from your inventory onto an object in-game to receive treasure or go forth (Easter Egg area, killing the Talking Tree, etc.), but I don't think there are any more items you can combine just in your inventory other than potions.
