Karma is gained or lost on a sliding scale. At the top of the scale it requires much more noble deeds to raise it further, while only murder is a horrid enough act to take you to the very rock bottom of the scale. Karma is most useful for helping you roleplay interactions with other characters.
These are some of the actions that will raise your Karma.
Killing evil NPCs
Killing monsters
Giving gold and items to good NPCs
Turning in the head of a bountied Murderer
Casting helpful spells on characters with positive Karma
These are some of the actions that will lower your Karma.
Being reported as a Murderer
Killing good NPCs
Killing dogs, cats, dolphins, horses, pack horses or pack llamas
Chopping up corpses
Casting helpful spells on monsters or evil NPCs
Summoning Daemons
Stealing
Snooping
Using the Poisoning skill
Casting helpful spells on characters with negative Karma
