From Diablo Wiki
Demonic Essence (DEs) is a crafting material and a commodity added in patch v1.07. These objects have a chance to drop only from Elites, Champions, Treasure Goblins, and certain major game events (those that grant a Nephalem Valor stack).
Demonic Essences have no function or use in game, except as they are used in crafting recipes. They are Account Bound (BoA) and can not be traded or given to other players, though they may be sold to NPCs (for 25g). The developers' intent with DEs was to force players to play some and farm their own DEs for the new v1.07 crafting recipes, rather than simply being able to buy DEs along with all the other crafting materials required.
It's unclear why Demonic Essences are the yellow Rare color rather than light blue, like all other crafting materials, or why they only stack up to 100.
 Demonic Essence Drop Rates
Blizzard detailed the odds for Demonic Essences to drop in the Patch 1.0.7 notes. They are only found on Inferno difficulty level, and only the Monster Power setting affects their drop rate. Factors such as Magic Find or the number of players in the game do not impact DEs in any way.
The odds are as follows:
- MP 0: 15.0000%
- MP 1: 16.5000%
- MP 2: 18.1500%
- MP 3: 19.9650%
- MP 4: 21.9615%
- MP 5: 24.1577%
- MP 6: 26.5734%
- MP 7: 29.2308%
- MP 8: 32.1538%
- MP 9: 35.3692%
- MP 10: 38.9061%
Note that the odds of one dropping increase by 10% (based on the previous value) per MP level. This ratio has been criticized by players who feel the drop rate of DEs is too low, since monster hit points and the general time to kill enemies increases by considerably more than 10% per MP level, which (some argue) makes the drop rate of DEs too low on higher MP levels.
 Utility and Availability
Opinions differ on the value and availability of Demonic Essences, with a definite divide between rich and non-rich players.
Rich players, those with huge amounts of gold to spend on crafting, feel that DEs drop much too infrequently, or just wish they could be sold or traded. After all, a player with enough gold to can buy all of the other materials, there's no drop rate of DEs that is high enough to meet his needs.
On the other hand, players on more of a budget can easily accumulate more DEs than they can afford to use, given the high cost of crafting each item and the impossibility of trading or selling those items to recover any of their costs.
It's often speculated that Blizzard may allow some form of DE trading, but as of v1.08 this remains only speculation.
 Demonic Essence Uses
When they were first introduced, Demonic Essences were a required ingredient in all of the new crafting plans and designs added in patch v1.07. Each recipe required just one Demonic Essence, plus various other ingredients to create level 63 Amulets, Razorspikes, Chest Armor, Archon Shoulders, or Archon Gauntlets.
- Archon Chest Armor of Vit/Dex/Str/Int: 150k gold + 1 Demonic Essence + 2 Tomes of Secret
- Archon Amulet of Vit/Str/Int/Dex: 100k gold + 1 Fiery Brimstone + 1 Demonic Essence + 1 Perfect Square gem
- Archon Gauntlets of Vit/Str/Int/Dex: 50k gold + 20 Iridescent Tears (yellow) + 5 Tomes of Secret + 1 Demonic Essence
- Archon Shoulders of Vit/Str/Int/Dex: 75k gold + 10 Tomes of Secret + 1 Demonic Essence
- Archon Razorspikes of Vit/Str/Int/Dex: 50k gold + 30 Exquisite Essence (blue) + 5 Tomes of Secret + 1 Demonic Essence
More crafting recipes requiring Demonic Essences may be added in future patches.
 Marquise Gems
Demonic Essences are also required to create Marquise Gems. The recipe for each is as follows:
- 3 Radiant Star Gems
- 20 million gold
- 10 Demonic Essence
Images of Demonic Essences and other related topics.