Smelting Stones are the most common upgrading stone, usually used to upgrade the first three levels of a piece of armor or a weapon to +3. Smelting Stones are made by transmuting armor or weapons at the Transmuter NPC in town.

Smelting Stones and Their Levels
Smelting stones will always be the same level as the weapon or armor that it was transmuted from. It is important to check the level of Smelting Stones in order to have the correct level for upgrading. If you want to upgrade armor or weapons using Smelting Stones, the stones must be of the same or higher level than the armor or weapon you are upgrading.

Making Smelting Stones
The transmuter in town can transmute armor or weapons into smelting stones for you, though you do have to pay for this privilege. The higher the level of the item you are transmuting, the higher the cost to transmute it. Smelting Stones will always be the same level of the item they were transmuted from. Transmuting armor will result in one Smelting Stone, while transmuting weapons will result in two.

Click and drag the weapon or armor you want to transmute in the box. You can see the cost to transmute. Click "Confirm" to continue, or "cancel" to abort the process.

Transmuted Smelting Stones will automatically appear in your inventory.

Also, have you tried to smelt and nothing happens. Did you know if you are overweight that you can not smelt. You see in the middle where the gold coins appear to the left of the total gold coins you have. Well to the left of the gold coins icon is the % of weight you are carring and to the left of that is a balance icon. The max is 150%. So if you are level 8 with a +4 sword, you can not even kill a fox with the max weight much less smelt. So if you have problems look at your weight and look to make sure you have space in your inventory.