First is when you craft an item, it can have stats if your blacksmith/crafting is high enough, however the stats possible are dependant on the item. For example daggers can get 4 results if you have 5 blacksmith: +dex, +speed, +lucky charm or +damage. Meanwhile, swords are only +dmg or +1 max AP, you can never get stats, though 2H swords can roll +str on them. The +dmg roll is also a trap, because you cannot further upgrade the damage with a whetstone on a +dmg roll weapon, but you can on the others. The difference is like 5% less damage, but you get the additional stat which makes them better.
Because of the set stats you can roll, overall daggers are by far the best weapons to craft, melee wise, because the stats they can generate are really good(+2speed is +1turn AP, which is obviously godlike, and since you can dualwield, that's +2AP per turn for "free").
Also at lvl 15+, you get more stats, though I forgot the values.
The second system, is the upgrade system. Once you have an item, you can upgrade it by adding various stuff to it. For example adding an elemental essence to it will add that damage type. Adding a Tenebrium ingot adds Tenebrium damage to it. Adding a tormented soul adds stats(str/dex) to it however iirc it doesn't stack so you can like make a 2H sword with str then add a tormented soul for str, but it's been a while so maybe you can. Note that you can't add everything to a single weapon, there's limitations of like 1 per type of upgrade(so can't have all elements on a weapon), and if I remember correctly using a whetstone will also prevent you from adding Tenebrium to it.
Bows have their own upgrades, where you add a Sextant for perception and a bowstring for +dmg.
I don't think wands have any upgrades possible, though crafting them with 5crafting should probably result in +int like staves, making them better than the stuff you find in general.