The artificer's craft reserve is multiplied by 5 (standard GP value of XP, as per the DMG), and then used like GP, but only for crafting magic items. Only the craft reserve granted by gaining a new level of artificer can be affected by this multiplication.
Retain Essence converts the magic item being drained into craft reserve equal to the amount of GP that would be required to construct the item. (i.e., Base Price divided by 2)
(i.e., If one received a wholely useless +1 Net as loot, the Base Price of a +1 enhancement is 2000gp. An artificer could then use Retain Essence on the magic net, and would render 1000 craft reserve. *Note, this craft reserve would not be multiplied by the factor of 5, as it is not from gaining a level.)