There are three types of familiars that a player can have:
Resurrected Familiars (Necromancy)
Summoned Familiars (Summoning)
Dominated Familiars (Dominion)
Familiars, once under the control of the player, all being at Level: 1 regardless of the level of the original creature (in the case of Resurrected and Dominated). When an enemy is defeated, Familiars gain experience the same as players, which allows them to increase their level. It is important to note that the level of a Familiar is not tied to a player's skill level or general level. Familiars gain experience towards their level equal to the total health of the defeated enemy. Even if the Familiar is brought into the battle when the enemy has a single health point remaining, the Familiar will still gain full experience.
In addition to level, Familiars also have something called rank. Ranging from Rank One (the lowest) to Rank Five (the highest) the Rank further dictates the strength of the Familiar. Unlike level, however, Rank is increased by the direct action of the player. The player must use Rank Materials in order to increase the Ranks of their Familiar. Each Familiar has three different attributes that have a Rank: Health, Attack, and Defense.
For example, let us assume that the player has resurrected their first familiar, a Rat. The Familiar, known as a Skeletal Rat, will begin at Level: 1 with Rank One Health, Rank One Attack, and Rank One Defense. The player wishes to increase the Health to Rank Two. In order to do this, the player would need to collect twenty Rat Hearts and use them at a Necromantic Altar on their Skeletal Rat. A Familiar's attribute is multiplied by the Rank of that attribute. Assuming the Skeletal Rat began with one health (at Level: 1), it would now have two Health. If the player was to increase Health to Rank Five, the Skeletal Rat would now have five Health. Bringing the Skeletal Rat to Level: 100 would have the effect of increasing the attribute by the amount of the level, in this case one hundred percent, giving the Skeletal Rat ten health.
Once a Familiar has been brought to Level: 100 and has Rank Five in all three attributes, that Familiar can be upgraded to the next stage. It is important to note, however, that not all Familiars can be upgraded. For example, a Skeleton can be upgraded to a Skeleton Warrior, Skeleton Knight, Skeleton Paladin, and finally a Bone Lord, whereas a Skeletal Rat cannot be upgraded at all. Weaker grades of Familiar cost less to have their Ranks increased. It might only cost ten Unknown Bones to upgrade a Skeleton's Health from Rank One to Rank Two but it might cost five hundred Unknown Bones to upgrade a Bone Lord's Health from Rank One to Rank Two.
More information can be found in the respective skill sections.