The Transformation Instructions book explains how it works, but in a nutshell you equip items to change the appearance of the werewolf/vampire lord. In addition to spell tomes that let you learn the spells there are hearts which you equip as staffs to cast the spells. One thing to keep in mind is if you use the hearts to transform, do it in third person, In first person it's a little glitched (turning into a vampire lord in first person using the hearts the new armor doesn't get equipped properly).
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