To upgrade your armour, you must go to the weapon smith. Please note when you upgrade a piece of gear, you cannot use it for the duration of the upgrading process.
When you visit the Blacksmith, drag the item you wish to upgrade to one of the slots on the left. Once you have selected your item, this panel will then appear.
You must then add items you no longer want to use into the six empty slots to match the craft value required for the upgrade. The anvil shows how much craft value is needed to upgrade the item.
1 - After you have filled the crafting bar, this is how much gold it costs to upgrade the item.
2 - This is the amount of time required to upgrade the item.
3 - This shows what upgrade level the item will be upgraded to.