Killing mobs will yield randomly generated drops from shears to swords. There are 7 tiers of items, from common to legendary (common, uncommon, rare, atisan, exotic, epic, legendary) and each is more rare than the previous. These items are pretty easy to understand, kill a mob, chance of getting rare item, yay!
But: you can get unidentified items, identity tomes, socket gems and socketed items. These are a little harder to understand.
You can get items with 'sockets' in which allow you to add special enchantments from 'Darkness' to 'Poison' by using socket gems.
A socketed item looks like this:
A socket gem looks like this:
Observe that the gem has a [TOOL] identifier, this shows it can only be used with weapons/tools, unlike the [ARMOR] identifier.
To apply your chosen socket, simply right click the gem, then the item that you want to add the socket to. The gem will be used up.
You can get items which are unidentified. To reveal their true meaning and function use an identity tome such as the one below:
You simply right click the tome and then the item you want to identify to identify the item. The tome is used up in the process.
Below is an unidentified item: