It's uh... yeah. It's a little complicated. And unfortunately the game doesn't make this at all clear.

It all revolves around the Workshop.

Quick summary

You can break down five types of items into their components:

• Moddable weapons: you must manually break these down with the Weapons Workbench.
• Moddable armor: you must manually break these down with the Armor Workbench.
• Non-moddable armor and clothing: you must break these down by dropping them on the ground while in the Workshop menu.
• Junk: these will be broken down automatically for crafting; however, if you want to manually "liberate" specific components for any reason (e.g. quests or easier transportation) you can break down junk by dropping it on the ground as above.
• Neighborhood debris: you must break these down by wandering around while in the Workshop menu.

Three benches affect component creation:

• Weapons Workbench
• Armor Workbench
• Workshop bench. Though this looks like simple a workbench like the others, it's the heart of the crafting system and has an inventory that's available for the other benches.

When broken down, the components go to different inventories:

• To your character's inventory: components broken down at a workbench.
• To the Workshop's inventory: components broken down through the Workshop menu when you've dropped them or find them out in the neighborhood.

The components that are available to you for crafting are a combination of:

• Actual base components (like Plastic) and potential components from junk items (like the plastic in a Plastic Plate)
• Materials in your character's inventory and materials in the Workshop's inventory

To get needed components, the Workshop:

• Will automatically break down junk items, whether in its inventory or your character's inventory
• Will not automatically break down any other items (armor, weapons, etc.)

Breaking down junk inventory

You don't have to break these down to access their components.

Let's say you have a Plastic Plate in your inventory. When broken down, that's worth two plastic. But those two plastic are available as raw materials without a separate step of breaking them down.

These materials are available for Workshop and Workbench crafting whether they're in your inventory or the Workshop's inventory.

It's also possible to break them down manually the same way as for neighborhood debris as described later: by dropping them on the ground and manually scrapping each one. (Infrequently when you drop an item on the ground it will disappear—falling through the ground or into another object—so you might want to back up before doing this.)

Why would you bother to break down junk manually? If you plan to keep these items in your inventory for their components, for example to move them to another settlement, the components themselves will usually be much lighter than the original item. Note the usually though. Examples:

• 10lb Lead Weight (10lb) = 3 Lead (0.9lb)
• Extinguisher (6lb) = 2 Asbestos, 2 Rubber, 4 Steel (1.2lb)
• Bag of Cement (8lb) = 5 Concrete (15lb)

(That last one is presumably because concrete = cement + sand/gravel/stone.)

Breaking down moddable weapons

Moddable weapons act differently from junk in that you must break them down at the Weapons Workbench.

Let's say you have an Automated Institute Pistol, which includes plastic as a component. That potential plastic is not available for crafting.

To make it available you must go to the Weapons Workbench, select the weapon, and use the Scrap command. This will place those components in your personal inventory.

While this is an extra step, it makes sense. If the Workshop automatically melts down a wrench in your inventory, that's great. If it melts down your beloved laser rifle... yeah. That sucks.

It is not possible to break down non-moddable weapons (for example grenades), even by dropping them and using the Workshop menu.

Breaking down moddable armor

Armor that can be modded works the same way as weapons: you must break it down to make its components available. You break it down the same way, but using the Armor Workbench. This will place the components in your personal inventory.

Breaking down non-moddable armor and clothing

Other apparel, including clothing and non-moddable armor like helmets, must be broken down the same way as neighborhood debris, which is described in detail next.

As with moddable armor and weapons, the Workshop will not break down these materials automatically. You must do it manually.

Breaking down neighborhood debris

For all the debris near a Workshop—walk up to the Workshop bench, choose the Workshop option, and then walk away from the Workshop.

As you walk around your neighborhood, items will get highlighted with the option to Scrap them. Choose that option and they'll get broken down -- you can even break a car, tree, or collapsed house into its components in seconds.

Unlike the Weapons and Armor benches, breaking items down this way places them directly in the Workshop inventory rather than in your own. This makes sense: if you break down an entire house, you don't want to carry it around in your pockets.

While in this mode, you can see the Workshop's area of influence as a translucent green wall around the region.

You can generally activate the Workshop crafting menu from anywhere within the Workshop's area of influence: hold down whatever key, mouse button, or controller button you have mapped to "Toggle POV/Workshop". (Look at the Workbench and it'll tell you the key.) Just be sure you're not looking at another item, like a container, when you hold down the key, or the Workshop menu might not appear.

Note that if you're in the Workshop menu and have selected an item to create, you won't be able to Scrap items you find. Press Tab to break out of item creation mode and back into the main Workshop menu.

Workbench inventory sharing

Components in the Workshop inventory are available for Workshop and Workbench use within that Workshop's entire area of influence.

By default it's not shared between Workbenches in different settlements. As discussed in this question, you can set up a supply line to share resources between settlements.

Leftover components do not disappear

Many people believe that when the Workshop automatically breaks down a junk item to get a specific components, the other components are lost.

While this is a widespread belief (and for good reasons), it's not true. Details are in the accepted answer to the question What happens to extra materials from salvaged junk?

The Workshop is a secure location to store items (the workshop in Sanctuary is available immediately upon exiting the vault). Actual items (ie: not junk) stored in your workshop store will not be broken down automatically during construction of other structures.

Generic containers can also be used for storage as they do not appear to be reset after a period of time (like previous Fallout games and other games using Fallout 4's game engine like Skyrim) - I've had a set of containers (filing cabinets) that I placed next to my Workshop in Sanctuary and I've been storing Power Armor components in one and holodiscs in the other - so far these have not reset (over a period of three weeks of game world time).