Blood Magic is a slightly different take on the other, more typical schools of magic in Dom 3. Instead of using magic gems to cast spells, blood mages use blood slaves to power the enchantment. Blood magic replicates (to a lesser extent) many of the spell effects of the other magic schools in a "Jack of All Trades, Master of None" situation, including some excellent summoning spells.
One major benefit to blood magic however, is your ability to regulate the supply of magical fuel -- in this case, blood slaves. Most other schools of magic are at least initially dependent on the gems being provided by the magic sites that you have discovered (exception: Astral from Astral Clams, Fire from Fever Fetish and Earth from Bloodstones, which allows you to alchemize into any further gem types you require). Blood on the other hand simply requires that you hunt for blood slaves, which can be found in any province. Since your blood slave income is not fixed, you can theoretically control the flow of said slaves through your own actions up to the limit of what your population can support.
Blood slaves are the virginal daughters (and perhaps sons) of the population of your nation. They show up in your strategic display just like other magic gems -- your mages can have them in their inventory, send them to the labs or trade them between themselves just like other gems.
In the tactical (battle) screens however, blood slaves appear as units, standing meekly by the mage or leader that had them in his or her inventory. They will not attack, but they can most definitely be killed in all the regular, messy methods. As blood magic is cast on the battlefield, the blood slaves will be "used up" by the nearby mages casting the spells.
As a general rule, it takes more blood slaves to accomplish a given effect than a comparable spell uses gems. For example, the Nature spell "awaken ivy king" requires 30 nature gems, whereas the Blood spell "bind arch devil" requires 99 blood slaves. Obviously the ivy king and the arch devil are not exactly equivalent, but they can be thought of as relatively on par with one another as they are both level-7 spells.
Since you are the beloved god-head of your nation and the rightful ruler of all creation, your worshipful people willingly provide their nubile, virginal children to be messily killed for your greater glory. All your representatives have to do is go door-to-door asking for children to be slaughtered, and the villagers smilingly give them up.
Well, maybe it's not quite that easy.
Blood slaves are obtained by setting a leader's orders to "Blood Hunt." Any commander can blood hunt and obtain blood slaves although mages with levels in blood magic are far more better at it. Some nations such as Mictlan have specialized blood-hunting units. A Sangine Divining Rod grants a +1 increase in the Blood path of a blood-mage for purposes of blood hunting. The number of blood slaves that can be obtained each turn is a function of the leader's level in blood magic, the number of blood hunters actively hunting, the size (or more accurately lack of) population in the province and the amount of unrest in the province.
Population has an effect only when population is less than 5000, with decreasing returns tied to dwindling population. Provinces with greater than 5000 inhabitants all will furnish the same potential number of blood slaves per turn.
Blood hunting causes unrest, although a leader's level in blood magic also seems to affect this (higher levels causing less disturbance). Unrest in turn causes fewer blood slaves (verify) and less money to be available from that province, but won't affect production. Patrolling the province and setting taxes to a lower level reduces unrest, but patrolling also reduces population. So as a long-term solution patrolling to control unrest can be quite harmful to a province's economic value, and if the pop falls below 5000 to the number of blood slaves available as well.
Note also that blood hunting also reduces the population of the province (fewer nubile virgins =fewer new babies= drop in population). This can be counteracted by a high Growth scale, or limiting blood hunting to provinces with very high populations. Each level of Growth scale will add 2 people per 1000 pop each month. So a 5000 pop province under growth 3 will add 30 people each turn minus captured blood slaves and effects of patrolling.
Bootstrapping into Blood
Many nations have no natural access to blood magic without a magic pick from their pretender. However, due to the ease of bootstrapping into a blood economy, many players will simply take B0 for their pretender, choosing to spend the points elsewhere. To start their blood income, a common trick is to dedicate 12-24 scouts to blood hunting in a 5000-6000 pop province with taxes set to 0. After a year or so, they should have collected enough blood slaves to empower a mage to B1. From there the new blood mage can forge a Sangine Divining Rod and join the blood hunters. Within 6 months or so they should have enough slaves to empower the mage to B2, etc...
If you have a strong N or S gem income, you can bootstrap into blood using Lamia Queens or Ether Lords (N5D2 or S4D1, both at Conj-6), as each one has a 25% chance of having a B1 pick. One of the three unique Tree Lords (N5 Ench-7) also has a B1 pick.
Another method is to find a province that allows you to train the indy Jaguar Tribe Priest. These N1 commander sacred units have a further 10% chance of having a B1 pick. So for the price of a large gold investment, with a little luck you can theoretically get a B1 Priest within about 1 year or so, then forge a Sanguine Divining Rod and proceed from there.
There are a negligibly small number of sites that provide blood slaves on a turn-by-turn basis like other other magic gems. Typically, these sites are found in the capitals of the blood nations like Mictlan, but on rare occasions they can be uncovered by the normal site-searching methods.
As such it is generally considered inefficient to search for sites that provide blood slaves. They are so few in number that the return on time or gem investment is questionable. However, if you notice an inexplicable increase in unrest in a province, it might be due to the presence of an undiscovered Blood site (or an enemy spy inciting revolt). In this case it is worth a try to search the province up to B4. Inpot End and the Shaded Lands also affect unrest (both are D0 sites), so if one of those sites is present they are the cause.
Some nations have the option of using blood sacrifice to increase the strength of their dominions, while for most it is forbidden (hard-scripted into their national specs). Mictlan in particular must use blood sacrifice to spread dominion since Mictlan's dominion will not spread in the normal way. Blood sacrifice will increase the strength of your dominion in the province by causing a "temple check" for each blood slave sacrificed. A priest may sacrifice one blood slave per his priest level.
In a nation that allows it, any (sane) priest may blood sacrifice. To do so they simply set their orders to "perform blood sacrifice". They must have blood slaves in their inventory, and they must be in a province with a friendly temple. The amount of blood slaves a priest can sacrifice can be improved by the use of magic items, notably the jade knife.