Your character in Nioh 2 has a Yoki Guardian spirit tied to their soul. This allows you to temporarily transform into a powerful being capable of dealing a great deal of damage, and taking on a demon-like form. You choose what your demon looks like at the beginning of the game, but it will vary depending on the type of guardian you choose to wield. But you cannot freely transform into it. You need to meet specific criteria to do so.
On the top left of your screen, you have your health, ki, and Amina bars. At the base of those three bars is a circle, and most of the time, it’s lit up, showing the outline of the guardian spirit connected to your character. While that guardian’s spirits outline is fully highlighted, you can summon into your Yokai form for a short time. To become your Yokai form you need to press the triangle and circle buttons at the same time. After you use it, the full circle goes away, and you have to replinish it.
To replinish your Yokai meter, you need to engage enemies in combat and perform melee attacks against them. You can do this by naturally playing through the game, fighting baddies while you explore an area, and then summon your Yokai spirit whenever you need a little extra strength to take down a particular enemy. Most of the time, you want to save it for mini-bosses, such as the Ippon-Datara or the Enki, and on the bigger bosses such as Enenra or Yatsu-no-Kami. If you die to a boss and your guardian spirit remains in its arena, you need to choose to summon it to you from a shrine or immediately return to the fight to try again.
Mastering your Yokai spirit transformation is important because it can quickly shift the tide of combat in your favor. If you don’t watch to see how full it is, you might find yourself in over your head during a battle. Make sure to regularly sweep areas you’re exploring to engage enemies in combat to recharge it continually.