Quality, Condition, and Bonus
On all of your equipment, you will see these fields. They affect how effective your equipment is in it's protection or the amount of damage it deals. "Effective AF" and "Effective DPS" are the results of Qua and Con affecting your gear (you can see these by right clicking an item, then pressing "shift + i"). I found the below quotes from a Tradeskill site (site listed in links section):
"Effective AF is all the combat algorithm looks at, if blue gear is giving better AF than yellow because of higher Quality, the blue gear *is* better. I've tested this extensively, 50 percent quality 30th level armor gives the same performance as 100% 15th level armor of the same type (assuming you are 30th). We're going to be changing the right-click item info to display effective AF so people are more aware of this."
"Effective AF" is derived from base AF (the number currently displayed on right-click). Every armor item has a base Armor Factor, base AF divided by 2 equals Item Level for everything but Cloth, where AF = Level. But when you're in combat, the base AF is affected by Quality and Condition. Quality affects both the chance the armor will completely absorb the blow, and the amount of damage you take when it does, so the impact of quality "double dips". Condition only affects the damage taken. So "Effective AF" equals Base AF times Quality times Condition.
The "ArmorFact" field on the character display has always reflected this effective AF rather than base AF.
So after reading the above I surmised the following (note: in game there are also other unknown variables that go into determining Effective AF, so what you see in the following example is lower than what you will see in game - but the unknown variables do not change the trends shown here).
Quality affect on Actual AF:
Which would you say is the better piece? If you picked AF 42 piece you are wrong.
42*.85*1 = 35.7 actual AF
Condition effect on Actual AF:
Player made vs. Merchant bought:
Effective DPS follows the same pattern, simply multiply DPS * Qua * Con and you get your effective DPS. For instance let say a dagger can deal 8.5 DPS and we have 2 daggers: one merchant bought at 85% quality, and the other at 94% quality player made. The effective damage for the 85% dagger would be 7.2 DPS and for the 94% dagger would be 7.99 DPS. Same deal for your Recurve bows; however, Quality on arrows does not affect them in any way, the only reason to craft arrows vs. purchase is to save money in the long run.
When determining your Effective DPS or AF, you will see something called "Clamped" on the information sheet (shift+i). This is set by your level, so using high level items does not give you any benefits other than having nice stats, or allowing you to use them for a longer period of time without having to worry about new gear every time you level. The one pitfall of using higher level items is they degrade incredibly fast, so I recommend you only use items that are orange/yellow con to allow for growing room, without making them degrade too quickly.
Bonus ("Bon") is incredibly important on weapons and armor even though it may not look that way. It affects the amount of damage you deal with weapons, and affects your chances to hit an enemy. If you do not get Bonus enchanted onto your items (which is what Enchanter NPC's do) you are not going to do as much damage and you will allow people to hit you more often. Here's how it works:
Sanya claims it does not affect the amount you hit for, but testing has found that it does, in fact, help determine damage. A quick example was a 100% Qua, 16.2 DPS Bastard sword I was using (without Bonus on it) hit for as low as 4 damage on another player, and as much as 150 in some tests I ran.
Keeping Gear Upgraded
At starting levels money is very scarce, and it is difficult to keep gear upgraded. So, I buy my pieces in Rotation.
Here is the rotation I started at lvl 10 for reinforced armor:
By following this rotation I have been in all orange and yellow armor and have had orange and yellow weapons at all times in a very inexpensive manner.
Also, quests and drops will provide some equipment. Plan ahead and when you have to buy a piece make sure it is player-made.
After around level 20 the cheapest armor type is Tacuil, and usually in full sets since each step of the same armor type jumps by 10 AF. It should be noted adding 10 AF to your armor increases it 5 levels. So you will only need to be purchasing new armor every 5 levels, and usually when it turns blue or green. To figure out what AF would be yellow to you at your level, multiply your level by 2. If you are level 15 you need AF 30, and if you are level 30 you need AF 60 armor.