Fate Points are a saving throw against something that just happened. A Hero can use them to negate a bad roll. Each Hero starts out with two fate points. Fate points change things which
have just happened (i.e. incidents in that turn). For example, if a Hero was hit by an attack, he could spend a fate point after he found out the number of wounds he has suffered and thus negate all the damage. A Hero may not spend a fate point to change something that happened in a previous turn.
Although fate points can be used during exploration turns, they are most commonly used in combat. A Hero may spend any number of fate points in the same combat turn. Fate points cannot be lent to other Heroes.
Fate points can be spent to negate (i.e. reduce to 0) any and all damage a Hero suffered in a turn. This is the single, most important function of fate points and can be used in any circumstance. It can be used to negate the damage from an attack, the damage from a trap, or whatever.
Fate points can also be spent to convert a failed dice roll into a successful dice roll. Again, this ability can be used under any circumstances. It could be used to convert a missed attack into a hit, a failed Intelligence test into a successful one, and so on.
Fate Points are recovered between 'quest packs' - not between each quest, but between each quest 'pack' or scenario.
Each Hero can increase the Fate Point characteristic when a Quest Pack is completed - a reward from the gods for their victory. The number of fate points received depends on how successful the Heroes were during the play. Each Hero may receive two extra Fate Points when a quest pack is completed (you may want to award Fate Points only when a pack is over 8 quests long). Deduct one Fate Point if the Heroes failed in a quest, or failed to recover an artifact hidden in the quest.
Fate points can be increased to any level at the cost of 1000 gold coins per point. This represents the Hero making an offering to the gods - they reward his proven sanctity by gifting him with a fate point.
When playing with Fate Points you might want to consider making the quests and/or monsters harder. Or once the Heroes Fate Point total gets to a certain point (such as 10), it gets harder for that Hero to gain more points (maybe 1 Fate Point every 3 quest packs completed, or at a cost of 5000 gold coins). This is to keep the Hero from accumulating too many points.