Pretty simple, every 100 experience points you can add to one of your stats. So if you have 4 strength and 100 xp points you can cash in your xp points and get 5 strength. If you want to add more HP, it's 100 points for 5 HP.
For 300 XP you can learn an ability normally only available to a specific class. I'll repost the info on classes.

So for 300 XP you could learn the Brawler skill Rage, or learn how to use dual rapiers, or learn how to the Thief skill of how to make bombs.
This might throw out the combat balance a bit, but who cares? It's cool!