All character stats, characteristics, skills, advantages, traits, etc, etc, are defined as "abilities". An ability can be inherent or learned, doesn't matter. Disadvantages, weaknesses, etc are simply "negative abilities". Each ability has multiple levels, indicating greater power or skill in using it.
All abilities fall into one of four "steps", depending on how broad or powerful the ability is. Each step is defined by how many experience points it costs to buy a level in one of those abilities. There are four pre-defined abilities at the 16-point step: Physical, Social, Mental, and Magical. All characters begin play with one free level in each of the 16-point abilities (except Magical - only magi get that free).
Abilities in the lower-cost steps are increasingly specialized in nature. See the examples below to get an idea of the level of breadth associated with each step. In general, a quarter-point ability should be something that a beginner could can gain noticeable improvement in during the course of an afternoon's practice, a minor quirk, or a trivial hobby.
Note that these are sample abilities only. More abilities can be added to any other step, and abilities need not be exclusive. Negative abilities should be slightly greater in scope than the corresponding positive abilities.
Important note: Abilities in different steps are ADDITIVE. The best way to explain this is by example. If your character has 1 level of Physical, 2 levels of Melee, and 2 levels of Swordsmanship, then you have an effective level of FIVE in Swordsmanship, because all of the "parent" abilities add in. Think of abilities as a tree, cascading down from the upper steps to the lower steps. However, individual abilities don't always have to fit into a specific upper category. A good example is Music; depending on how you use the ability, you could combine it with Physical (playing a harp), Social (singing a love song), or Mental (composing a fugue).
Because the quarter-point abilities are so cheap you obviously can buy a lot of levels in them at very low cost. However, as a rule of thumb, no ability can be more than two levels higher than the most common parent ability. For example, if you only have one level in Melee (4-point ability), you cannot have four levels in Swordsmanship (1-point ability) without the GM's permission to explain how you got so good at Swordsmanship without learning the more general combat principles represented by Melee.
As your character progresses, you can "collapse" four low-cost abilities into a single level of an appropriate parent ability at the next higher step. So there's no need to "save up xp" for high-cost abilities - you can reach the same goal by putting the xp into appropriate lower-cost specialties.
Note that the 16-point abilities, and even some of the 4-point abilities, are amazingly broad. While these abilities can be applied to any number of more specialized abilities, you can only use them alone for "general" tasks or areas of knowledge, the type of thing anyone might know about or how to do. Thus, if you have 4 levels of Language it doesn't mean that you will automatically be able to speak to a visitor from China - it means that you can apply those four levels to every language you know. Of course, if you do decide to learn Chinese you'll be an exceptionally quick learner, picking up the language exceptionally fast. This does allow you to have 0-point abilities to represent such specializations within a broad category.
As with all the rules, this whole system is pretty much a set of guidelines without any hard and fast rules. Basically, anything you do will have to be OK'd by the gamemaster.
A quick note: In actual practice I'm going to minimize dice rolling as much as possible. And even when I do call for a roll, I may not tell you the required target. Or I may make the roll myself. In general I'm not that concerned with mechanics. You tell me what you're character's doing, I tell you what happens. The dice exist solely as a means to help me make decisions.