How to Heal
If your characters know the heal ability, you can enter combat and heal yourselves. One of the manuals offered to you at the start of the game gives the heal ability. You can heal animals this way too. If you don’t have that ability, try equipping regen items and meditating. The begger in nameless village will give you one if you pick the option when he runs into you.
You can Meditate to heal your HP and MP. You should go from 1% to full within 6 hours of Meditating.
At the bottom of your screen should be 3 buttons. Sneak, Meditate, and Battle. You can also assign a hotkey in the settings. It should be P by default.
Hold that until your character sits down and starts meditating. He will start recovering HP and MP after a little while.