As you level up each hero you'll learn recipes to craft their Equipment. Crafting an item costs 10 scrap, and the results appear to be random. Crafting a specific type of Equipment requires additional materials. The Power of an item is based on your level when it is crafted.
You can use the crafting tab to do the following:
Smelting
Smelting allows a player to destroy items in exchange for materials. This can be done on up to 9 items at once, and only unequipped items can be smelted.
All items grant scrap, and higher rarity items grant shards corresponding to the rarity.
Crafting
A player pays materials to receive a new item of random rarity. The amount needed varies based on the desired item. The resulting hero power is based off the average hero power the character would have if the highest hero power items were equipped.
See also Crafting Costs
Rerolling Properties
Randomly chooses new properties with new percentages for an item. Costs materials.
Rerolling Traits
Randomly chooses a new trait for an orange/red item. Costs orange shards.
Increasing Rarity
Takes an item of blue rarity or less, and Increases the rarity of that item by one level. This doesn't affect the item's power. Cost depends on the rarity of the item.
Removing Illusion
Removes the illusion Weapon skin from a weapon, returning it to the default appearance for the weapon.
Add Illusion
Add a random illusion (Weapon skin) to a weapon.