Making up Words

I have been in a debate for a while now over the subject of made up words in novels...

Here's the opposing side - When you make up a word, then a reader will not be able to visualize what is being said.  I find this true in instances where someone has made up words for things like 'water'. If the writer is speaking about water, then calling it fregna would make no sense. Unless you want the reader to have to look up the meanings in the back of the book. Which makes a lot of work for readers.

My side - It is okay to make up a word for something, if that thing does not exist in real life. The only thing is to make sure and explain, or give a quick description of the item, so the reader does not have to be confused over what the word means.

The debate began when someone read a portion of my story and felt confused as to what the item was I had spoken about. What that person neglected to understand is there is no word for what the item is. I had no choice but to make it up, and the reader also skipped past the part of the story where I describe what the item is.

So here is my question, to which I would love your feedback. :-)

Is it confusing to make up a word for something that does not exist in real life, and if it is necessary to do so, what is the best way to bring the word about so the reader does not feel confused?

Also, is it confusing to have that made up word as part of the story title? Or does it have the possibility of catching the reader? Like in Eragon?

Thank you all!