Each point decreases the amount of mana it costs to cast spells for the player by 1%. If you have 30 mana reduction, your spells will cost 30% less. This does not lower the ability of the spell, only the cost.
Mana reduction is capped at 50.
Characters with the arcane mastery skill gain a bonus 25 mana reduction while arcane mastery is active. This will not show up in the attributes display and will not allow you to go over the cap of 50.