The maximum amount of power available is determined by how many natural items are in the vicinity of the altar, dirt, grass, trees, plants, etc. all contribute; stone and sand do not. The important thing is to have a diverse mix of different plants, trees and crops (plants from other mods are supported to an extent as well).
Activating the altar by right-clicking on it will bring up a screen showing how much power the altar has collected, how much it can collect and its current recharge rate. It is important to check that there is sufficient available power to perform a given rite or use a distillery or kettle recipe.
An altar is created by placing six altar blocks in a 2x3 pattern; you will know it is correct when a red cloth appears over the top of the altar.
An altar is a focal point to concentrate the magic present in the surrounding area into single usable source of power. Since witchcraft is a method to harness the power of nature, placing an altar in a location with little or no living things will yield very little magic to work with. There is a reason why most witches huts are found deep in dark forests or swamps!
An altar has a range of about 14 (to 16) blocks to collect power and a range of 14 (to 16) blocks to distribute power (the distribution range can be extended to 28 (to 32) blocks by placing an Arthana onto the altar). Any Heart Glyphs, Distilleries, Spinning Wheels or Kettles must be within this range in order to draw power from the altar. Devices can only draw power from a single altar; it is therefore important to upgrade the altar rather than making multiple altars. Devices can share a single altar.
Certain objects (or foci), placed onto an altar, will boost the focusing capabilities of an altar, either improving the amount of magic it can focus, the rate at which it replenishes or the range it can distribute power. Only one of each type of item (skull, chalice, etc.) will have an effect. There may also be other less savory foci that dark magic practitioners could make use of.
Boosting maximum power
Boosting recharge rate
Boosting power distribution range
Because vanilla Minecraft does not support skull drops for skeletons; witches and warlocks will use an Arthana to strike the killing blow on skeletons in order to try and acquire a skull (the chance is quite low, but improved with a Looting enchantment). Unfortunately, this weapon does not change the chances with Wither Skeletons (the looting enchantment has been known to improve that chance!)