Crafting
Items can only hold a limited number of elements and effects. If the item being used as crafting material has a third element, the final item will have a random between those two elements. This may overwrite a beneficial element on the base item. Rarer items will give bigger crafting bonuses when used as materials. You can also craft the items that characters currently have equipped while they are battling.
Leveling
Once a character has enough experience points, they will level up and can improve attack, magic or defense.