Use a knife or other sharp object on a piece of wood, and the game will display the types of arrow shafts and bows you can make (based on your skill and your current supply of wood). Select the item you wish to make, and if successful an item of that type is created. To make functional arrows out of arrow shafts, you will need to attach feathers to them.

Double-click on a supply of feathers, then click on a supply of shafts to create arrows.

Gideon's Advice
0-20 Buy from bowyer NPC
20-30 Make Arrows
30-70 Make Bows
70-90 Make Crossbows
90-100 Make Heavy Crossbows