There are two sizes, large or small, and they can be found in memory stones or dropped by folks. Folks have a much greater chance to drop them if your HP bar is below 50% or more.
To use a life drop, simply walk into it on the floor. They cannot be saved or stored for a later time and will fade out of sight after a short time if you do not pick it up. If you find yourself short of health, an alternative is to use a portal.