I have silver that will raise resistance permanently but says i must cook before using.
How do i cook it first?
If I combine with other item it no longer grants permanent boost

You need to have more than one (and up to 10) then put them in the alchemy pot and cook them. The better your alchemy skill is the more potent potions you can brew (you need to train your alchemy skill first). It's better to use the maximum number of pieces from an ingredient (10 like I said) because this will produce the strongest potions while minimizing the waste (remember that you will need at least 2 so using 2 every time, you will waste 50%). Be patient and collect 10 before you cook. For brewing magic damage crystals (yes, you can make you own crystals - except for spirit damage) I think the maximum number for best results is 5 (or 4 if I remember correctly) but you need to experiment a bit.

Actually alchemy is very useful in Two Worlds because some potions give you significant permanent boosts making your character enormously powerful indeed.

Keep in mind that the description of the results you can get from various ingredients is not always accurate so you may get unexpected results. This is why it's a good idea to save before experimenting with alchemy.

PS Spirit damage crystals are the rarest and the best because no monster has immunity to them.

There's a few simple rules to alchemy in Two Worlds:

a) You need at least two ingredients to create a potion or gem.

b) Never mix ingredients with permanent effects with those that have timed effects because the result is gonna be a potion with a timed effect. You can, however, mix permanent effect ingredients with ones that only have an instant one like healing, replenishing mana or curing poison (i.e. rabbit bladders or reaper meat).

c) If at least half of the ingredients used are minerals the result is gonna be a damage boosting gem for your weapons. Use more non-minerals than minerals to get a potion which increases your protection.

d) Use as many units of the same ingredient as possible as this slightly strengthens the effect (at least according to the manual - I have the impression that this actually only happens due to the way the game rounds the values up or down). Anyway, this means that you should always use ten units of the same non-mineral or four units of a mineral and six units of a non-mineral for maximized efficiency.

Also you should make sure that your alchemy skills are maxed out before you start brewing potions, else you will only be wasting ingredients.