You can fuse 10 characters and a fusion stone of the same rarity to obtain a character of a superior rarity
The option is in servants, in the lower right corner.
And the drops of the fusion stones are in:

Tier 1
Tera 1-12
Missions (this is the fastest form)

Tier 2
Tera 1-12
Tera hard from 1-4 to 1-10
Haqua from 1-5 to 1-12

Tier 3
Tera hard 1-12
Haqua 1-18