3 chipped gems + magical sword = New magical sword of the same type with new stats and 3 sockets (There are only 6 types of swords that can get the cruel mod, Colossus Blade, Colossus Sword, Cryptic Sword, Champion Sword, Mythical Sword, and Conquest.

3 Perfect Gems + Magical Item (Non Sword) = New Magical Item of the same type with new stats. (You can do this with any type of item like charms, armors, and weapons. But mods that are specific to a certain item class like cruel or godly will only appear on their respectible item class)