Any LP we generate (by stabbing ourselves or fighting monsters) is ported directly to the Blood Altar and currently, that is only useful for us if we want to craft within the altar, but that's not where blood magic ends.
Crafting a tier 1 blood orb can be done by filling up the altar with 2000 LP and then right-clicking the altar with a Diamond. You will then need to right-click it with it in hand so it will bind to you, a few more mechanics come into play as well as new toys and gadgets. Unbound blood orbs will not collect LP.
The Weak Blood Orb converts the Life Essence contained within an altar into a stored form of energy. This stored Essence cannot be turned back into a physical liquid and will be stored in the owner's network (personal network). Other items, later on, will draw LP from this personal network to perform certain tasks. This tier of the orb is capable of storing up to 5,000 LP. This number can only be raised by using higher tier orbs, or by placing some of the Rune of the Orb around the Blood Altar. The capacity of the network is based on the highest blood orb that has ever been bound to you.
You can transfer LP into the orb directly by right-clicking while having it in hand, or by right-clicking it into the Blood Altar, this will gradually draw all the blood out of the Altar until either the orb is full or the Altar is empty.
You will notice that the blood orb is used as an ingredient for crafting but you will get the Blood Orb back after each craft and it also has no durability. Therefore, there is no benefit to making more than 1 of the highest tier Blood Orb your altar can support the creation of.
There is no limit to how many Altars you can make.