Digging for materialTo dig, you go to a place called "Candy Island", but to get there (besides clicking Knuffel> Candy Island on menu) go to the
Quests page and click on the "Dig For Material" banner on the left.
What can you dig up?- Materials for quests
- Food Points (food points you can get at a time are... 10, 50, 200 and 1000)
- Avatar items (available avatar items change after a time)
See
This announcement for more details. (these are rare and also depend much on the same stats as for digging up materials. The higher your stat in an element, the higher your chances in that element, but, that doesn't mean you can't find something with low stats.)
This is quoted from one of Firn's posts (page 146 of this thread)"The higher your Knuffel's level is the higher is your chance of getting items for your avatar from digging. It is like with rare material.
Food on the other hand is a "bonus" when your Knuffel does not find any material. When your Knuffel is level 100 in one element it will always find material or avatar items and no food."
"Digs left today" reset every 24 hours.Reset happens always at midnight of server time. Server time is displayed on the right, together with your last visit's time and your local time.

Each time your Knuffel digs, its Energy and Happiness go down, so after a few times you'll have to fill its bars again in order to continue digging. (But! You can't do it RIGHT after you dig, it needs time to rest!)
Your Knuffel can also only dig a few times per day. It gets higher as your Knuffel's level increases. Number of digs available is listed next to each Knuffel on Knuffel page.
****Food points appear to get you less exp than materials. Even when digging outside their element.
[See this post]Digging Inside their elementFailure
- Energy lost: ~ 15
- Happiness Lost: ~ 10
- EXP gained: 1
Success
- Energy lost: 16-20
- Happiness Lost: 5-9
- EXP gained: 3-9
Digging Outside their ElementFailure
- Energy lost: 25
- Happiness Lost: 20
- EXP gained: 1
Success
- Energy lost: 17-30
- Happiness Lost: 15-19
- EXP gained: 13-29
- The element you'll locate Knuffel's points in, determines what environment will give you biggest chance of finding material.
- The higher your Knuffel's element, the bigger % of finding material.
- Rarity of the item does not determine the amount of exp gained.
Here is the list of places to dig by the element:

Dark Plains

High Plains

Knobby Woods

Fire Mountain

Tower of Light

Frostland Coast
Seems easy, right? Good, now let's learn about your map...
This is what you want to start with.

You use the arrow to view a list of your Knuffel (the name on it will the the Knuffel you have selected currently). You can choose between few sorting types.
Your Knuffel's stats don't refresh automatically when you feed them in another page, so if you feed them while this window is open, click the "Refresh Stats" button so the up-to-date stats show up.
[limg]http://i45.tinypic.com/vz8zo9.png[/limg]
Each location on your map will look something like this. It will list the element (in this case darkness), the name of the place and of course, the "Dig Here" button.
[limg]http://i46.tinypic.com/2yni1bp.png[/limg]
This is what your Stats panel looks like. It'll list your Knuffel's name, energy, happiness, digs left, if it's ready to dig, and it's elemental stats.
You will not find material each time you dig, but the higher your Knuffel's stats in a particular element, the more likely it'll find something in that element. (My level 15 found about 3 items compared to Kora that found 1).