I am sorry that isn't yet very self-explanatory, so you aren't alone. The idea is you need to wrap a piece of cloth (just a rag will do) around the top of a piece of wood that is small enough to hold (have the stick or piece of wood on the crafting canvas, then drag over a rag and drop it on top, it will automatically wrap, more cloth burns longer). It then becomes a torch and can be lit. There are a few tutorial hints but they are easy to miss. This video I create several torches, see about 2:21 to get the idea.