The Sylph Exchange is run by Alice, an NPC who resides within Cloud City. Alice can be found next to the portal that leads to the Sylph Atoll or in locations inside the atoll. The locations inside only exchange one kind of sylph seal, while the Alice outside will give both.
By defeating sylphs inside the Sylph Atoll, you are granted the sylph's essence. Either an Essence of Water from the sylph's on the first tier or Essence of Wind from the sylphs on the second tier. For sixty Essences of the same type, Alice will trade you a Water Seal or a Wind Seal. The Seals, when used, will give you a new Iris or Pan sylph to use in your adventures.
You must be level 50 to access the Sylph Atoll or to trade with Alice.