To sanctify an object, place or person is to declare it holy and set it aside for sacred work, outside the mundane.
There are many variables within this definition; an item (or location) may be set aside for religious use, either dedicated to a specific God or for general religious use for the purposes of worship of any Gods. Sometimes things (and people) are sanctified on a permanent basis, such as the dedication to a lifetime of Priesthood, or the dedication of a permanent shrine, but quite often in modern magical traditions, things are sanctified on a temporary basis; a sacred space created or objects dedicated just for the purpose of a specific ritual, after which they may be declared once more mundane. Thus your living room may be sanctified as sacred space tonight, and when your ritual is complete, you may declare it once more your living room. The term for this is desecration. However, if you consider your home sacred space, then you are not desecrating it so much as sanctifying it to a different purpose, the sacred purpose of sheltering your family, assuming you consider that a sacred purpose.
In some religious contexts, the idea of sanctifying is to take something that is not holy or even that is sinful, and to legitimize it through sacred action. For example, sex may be viewed as sinful, unless within the sanctity of marriage.
See also consecrate.
Generally, an area/object/person is first cleansed or purified before it is sanctified to rid it of any energy collected from the environment, a previous owner, or previous magical or mundane applications. There are a variety of methods for this. It is wise to begin with a thorough physical cleaning and follow up with spiritual cleansing.
Once the object or area has been cleansed, it is a clean slate for you to write its purpose on. The act of giving it its sacred purpose is sanctifying. This is done in several ways, usually involving a combination.
Many sanctifying rituals involve anointing an object with oil, water, perfume or sometimes with ochre or some other sacred substance. The specific substance varies by tradition.
In creating sacred space, a circle or some other energetic structure is often built in a symbolic way, a sort of raising of the temple. Objects may represent certain necessary parts of the temple, a hearth, a well, a tree, a pillar, etc. and they may be represented by physical objects or created via subscribed movements, sounds, etc.
The sanctifying ritual also includes a declaration that may be sung or chanted. The declaration states that the object is no longer ordinary and is now dedicated to a sacred use. The sacred use should be specified in the declaration.
Once the item is sanctified it is generally then presented to the group and/or Gods/spirits involved.
It is difficult to give a very specific overview of the process, as it varies greatly by tradition. Discussion is welcome and would be helpful here.