The main things you need are good red wine, a blend of spices, some fresh fruit - one orange at least , preferably a lemon too and maybe an apple - some sugar and a dash of spirits (I like brandy, but sweet liqueurs are good too). How much water you add is up to you - a lot of mulled wine is about half and half, but you can experiment. It's also possible to add some orange juice rather than slicing up a fresh orange, but the taste isn't quite the same.
The best mulled wine recipe I've ever found is from Delia Smith's Christmas. I've made it many times and people always ask for more. It also works well if, instead of the spices Delia suggests, you use 2 sachets of good quality mulled wine spices. Otherwise I'd follow her recipe completely - and whatever you do, don't let it boil or you wil lose a lot of the taste. If the wine is just heated gently it will also be fine to reheat it later.