Pals are essential to your survival in Palworld, so it naturally becomes a requirement to enhance and upgrade them as much as possible. Enhancement is an in-game mechanic much similar to how you evolve Pokemon. In Palworld, though, you get to improve different stats.
There are two ways to upgrade your Pals in the game. You can either spend Pal Souls in the Statue of Power or sacrifice multiple Pals of the same type in the Pal Condensor.
Statue of Power
The Statue of Power can be built by heading to the Technology Tab. You will find it in the Level 6 row. It can be used to enhance 4 attributes of your Pal in Palworld: Max HP, Attack, Defense, and Work Speed.
The Statue of Power uses three different Pal Souls. Their order from least to most rare are blue, purple, and yellow.
Do note that you can reset all the upgrades done by the Statue of Power in case you already have a maxed-out Pal to get your Pal Souls back. This action, however, costs Gold.
Pal Souls are scarce to find so be completely sure which attribute to target and spend your Pal Souls on.
The Pal Condensor is not that easy to build. It unlocks at Level 14 and is an ancient technology; meaning that you require ancient technology points to build it. These are obtained by defeating Alpha Pals, Tower Bosses, or Dungeon Bosses.
After you have built the Condensor, interact with it and it will give you an option to choose a base Pal. This is the Pal that you want to upgrade or enhance in Palworld. You can upgrade it to a maximum of level 4, the current level is shown by the highlighted stars next to your Pal.
It will then direct you to your inventory and will require a specific number of similar Pals to sacrifice. The number of Pals to sacrifice depends on the level your Pal is currently at and is also specific to each Pal.
For example, upgrading a Vanwyrm to level 1 requires 4 Vanwyrms sacrifices, upgrading to level 2 requires 16 Vanwyrms, and so on.
The Condensor increases your Pal’s Max HP, Attack, Defense, and Partner Skill.