If you experience someone in the game who is being inappropriate, select their name in the chat window and the Friends Panel will appear - select the Report Button and enter the reason for the report (you have 30 characters) and press "Report".
When you report someone, or you are reported, a message is sent directly to Captain Ahab that includes the chat logs of everything that was said before and after that report.
Avery then reads the log and assesses the situation. He determines how bad the offense was, looks up prior offenses for the reported individual, and based on that assessment he issues sanctions such as muting or banning and sends an email to the offending account explaining the violation and the sanctions.
If the report was falsely made, that is determined as well, and the player who made the false report is investigated as to whether or not they have made previous false reports. False reports are just as bad as valid ones, and similar sanctions can be levied against repeat offenders of false reporting.
Everything that a player enters into the chat window is logged. These larger chat logs are also routinely checked for those infractions that are not reported.
If you want to read more about what is or what is not a reportable offense, please browse our Code of Conduct.