Tel Var Stones can only be earned in the sewers and districts of the Imperial City. They primarily drop from enemy mobs, and drop in multiples of four to encourage groups of four or less, as the Stones are shared equally between group members. More powerful enemies will drop greater amounts of Stones. Treasure Vaults and Cunning Scamps also offer large amounts of Stones. Completing quests in the Imperial City will reward you with boxes of Tel Var Stones, which can safely be kept in the inventory until needed.
Carrying a large amount of Tel Var Stones grants a multiplier when in the Imperial City, which affects the number of Stones you receive: x2 for 100 stones, x3 for 1,000, and x4 for 10,000. However, Stones are lost if you die within the Imperial City. Dying to mobs results in 10% of your Stones being destroyed, while dying to an enemy player results in 80% of your Stones being looted and conferred to the player who landed the killing blow. This encourages lower-density PvP than in Cyrodiil proper. Dying outside of the Imperial City (or in the City's two Group Dungeons) will not result in any loss.