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The most important thing about weapons and armor in Xenoblade Chronicles is the differentiation between standard, slotted, and unique.
Above: Shulk is equipped with a hodgepodge of slotted and unique armor. That’s right - hodgepodge
Though there are some exceptions, most un-slotted, non-unique weapons and armor are not worth your time or money. Sell off any that you collect and avoid purchasing them from vendors. In fact, most standard armor has a slotted version to be found. For instance, if you kill a monster and it drops a Nine Top, chances are one of the next monsters you defeat will drop a slotted Nine Top.
Unique weapons and armor come with non-removable gems. Sometimes this works in your favor, but depending on how controlling you tend to be with your character customization, you may want to stick with customizable slotted equipment. Sure, a unique helmet might add 20 to your defense and have a nifty Strength Up gem in it, but you’ll lose the benefit of that crucial Ether Up Gem you had in your previously equipped slotted helmet.