To create a manual grade item, do the following:

1. Navigate to your course
2. Select Grades from the top ribbon in your course:

3. Open the drop-down menu on the subsequent page and select Gradebook setup:

4. Next, scroll to the bottom of the gradebook setup page and select Add grade item:

5. You will then be prompted to configure settings for the grade item. Most of the default settings will be desirable, but there are a few places that you will want to pay special attention to.
The following items are underneath the Grade item menu:

5a. Item Name - What would you like the item to be called?
5b. Grade Type - Do you want this item to be worth points or would you prefer it to be a pass/fail scale item?
5c. Maximum grade - If it is worth points, how many points would you like it to be worth?
5d. Grade display type - Would you like it displayed as a real number, percentage, letter grade, etc.?
5e. Grade category - See image below. If you have grade categories set-up in your gradebook, you can have this grade item appear within that category once it has been created. This helps you skip a step and keep the gradebook looking organized: