Yes, understanding these mechanics is a little bit complicated at a detailed level, but let me explain the basic idea.

A) Your items' level should always match the enemies you are fighting.
B) Your items' should always match your character level.


Explained in detail:
If you fight a level 6 Demon with a level 3 weapon, you are dealing half the damage than with a weapon of the same level.
If you are level 6 and you have a Buff Item (a Gem, a Helmet, ...) that is level 3, the buffs on that item will be less effective. An item that grants 20% armor, will grant those 20% only if it matches your character level.



We are currently figuring out ways to improve the Item descriptions, so that it is more transparent to see what an item does and if it is better than another one. But the best rule to remember is: Better Item Level = Better Item


Also interesting to note is that Buff items are generally cheaper to buy than Spell Items so you have more flexibility to swap out things there! And although Spell Items do also have Buffs on them, the best Buffs will be found on Buff Items! :)