It must have a Soul Crucible one block 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 have at least one Soul Crucible one block away from the Altar of Souls. You must first deposit five souls into the Soul Crucible by right-clicking (default) with a Soulkeeper or Essence Vessel containing at least that amount. Right-click on the Altar of Souls and a GUI will open. An Iron Ingot, Book, or Wool of any color but orange (likely as orange is opposite of blue on the color wheel) can then be deposited into the slot on the left. After clicking the "Imbue" button after placing the item, it will then light up. It can transform an Iron Ingot into a Livingmetal Ingot or Wool into Soulweave. Both Wool and Iron Ingots require five Souls to be imbued. It takes 50 Souls to "Attune" a book and make an Enchanted Book with a Soul-based enchantment.