The Leech Liquid is one of Plague Knight's potion Arcana. It is found in The Lich Yard and is traded for the Phase Locket or bought for 2500 gold. Once Plague Knight has taken a drink of Leech Liquid every point of damage he deals to an enemy is given back to him whilst the potion is in effect. If Plague Knight is attacked whilst drinking he drops the potion and does not get the buff.
Notably the Leech Liquid doesn't seem to work on Ratsploders.