In order to make some dwarven equipment, you would have to find Dwarven Craftsman, which are spawned in Dwarven smithies.
He would use his skills on (new/special) anvils to make equipment. Of course with some fine forging animations with forging sounds :D
On a special anvil (left click to open), you would place iron/gold/mithril ingots in shape of a sword/axe/spear... After closing the menu, dwarven smith would start forging (if in radius 5 blocks). How many hits would take to craft weapon/tool, would depend on type of ingots you choose (ex: Iron 4 hits; Mithril 8 hits).
When dwarf is done with crafting, a message would appear above his head: We're done crafting over here!,, Your tools are ready sir!,, etc.
You could not hire that kind of dwarf and crafting wouldn't require coins or anything [only 100+ alignment].
On mod's wiki page (Dwarven equipment) it's written: ''The skill of the dwarves is unequaled...,,
So dwarven equipments should be made by Dwarfs :D