The first eight input bytes (the input key) can be arbitrary ASCII characters. The last two (the salt) are best chosen from the set of digits, upper- and lower-case letters, and `.' and `/'. The salt characters are repeated as the first two characters of the output. The remaining 11 output characters are chosen from the same set as the salt and constitute the output key.
The transformation performed is essentially the following: the salt is used to select one of 4096 cryptographic machines all based on the National Bureau of Standards DES algorithm, but modified in 4096 different ways. Using the input key as key, a constant string is fed into the machine and recirculated a number of times. The 64 bits that come out are distributed into the 66 useful key bits in the result.
Makekey is intended for programs that perform encryption (for instance, ed and crypt(1)). Usually makekey's input and output will be pipes.