You'll unlock upgrades for your armor, indicated as levels, by meeting the corresponding requirements.

Level	How to unlock
Level 1	Reach character level 5.
Level 2	Beat Shatterjak in The Shaddar Cage.
Level 3	Destroy The Dark Core in Palambron Keep.
Level 4	Beat The Unspeakable, Unnamable, Unimaginable Evil in Zhurag.
Level 5	Beat Zane in Ashgar, on Deity difficulty.