I think I heard somewhere that you can craft bandages. Is it true? And if so, how?

Yes it is. You need to find or buy a scheme for them, before you can craft them. Try searching the item trades for bandage :)

Ok, thank you. :)

What are bandages for? How do they work?

If you have bandages in your inventory (crafted or bought off the Item Trades), you can use them while exploring on an island. If you happen to lose a point of energy to a monster on an island, the button for the bandage will light up and you can replenish this one energy point. It only works once every island exploration though.

It's still quite useful, if you are low on energy and would leave the island ater the next loss, to give you another chance. Also if you head onto an island with 10 points and lose once, you would normally only have 4 points left, which would mean you couldn't explore again until that point replenished, so it is another useful strategy to use bandages here.