So, as the title suggest, I am playing clouds of Xeen (nostalgia) and to date I have gained 10 000 xp, but I am still level 1. I have tried visiting everyone I can find in the village, sleeping, everything. So far I have only explored Vertigo, half of the Blue Dwarf Mines and some of the forest to the south. I am obviously missing something but google searches yield nothing. So yeah, simply what am I supposed to do to turn my XP into actual levels?

Visit a training hall to raise your level. In Vertigo, look at location (10, 11). Vertigo can only train a character up to level 10. River city can train you up to level 15, while Newcastle can train you up to level 20.

You'll need enough XP, and it also costs gold to train.

you need to hit up the trainers.
in Vertigo the starter town is the building just north of the weapons shop

go forth and earn glory and riches friend

Or, of course, you could go to Castleview and train all the way to level 30. The problem, of course, is that Clouds of Xeen is not balanced around the levels and XP you can easily gain in the Darkside.

One thing to note: Late game, like after you've restored Castle Kalindra on the Darkside, you will run into the issue that gold, not XP, is the limiting factor towards advancement.

Also, be aware that training takes time; the time it takes is independent of the number of levels you train at a time. Hence, if you don't want too much time to pass, try to save your training until you've earned a lot of XP, or you really need some levels in order to make some progress (at which point get all the levels you can in one go).

Another little known fact: Unless you are playing Clouds alone (note that the GOG install already has the games combined and therefore isn't Clouds alone), until you reach level 15 enemies give double XP.

Thanks everyone for the help. I was really starting to get annoyed at it. It has been a while (like, 20+ years) since I played it last, so time tends to cause such info to fade.