This guide is based on the original guide from the official website. Please enhance and add things you think are missing!
Item Power, often shortened to IP, is a value assigned to gear pieces, such as armor, weapons and accessories, to measure their strength. An increase in item power will improve most (all?) of an item's flat bonuses, though percentage bonuses are unaffected. The magnitude of this increase is described a bit in this forum post by Korn.
Determining Item Power
There are 2 types of gear: normal gear, which doesn't need any special item for crafting; and artifact gear, which needs either a rune, soul, relic, or avalon artifact to be crafted. Each artifact level adds 25 IP.
There are 8 tiers of gear. Each tier above T4 adds 100 IP.
There are 3 types of enchantments: uncommon, rare, and exceptional, which are often known as .1, .2, and .3, respectively. Each enchantment level adds 100 IP.
There are 5 different item qualities and each gives a higher bonus to the overall IP:
|Quality||Item Power Bonus|
Mastery Modifiers grant an additional percentage to you IP for items T5 up to T8.
This encourages use of higher tier items when you have obtained specialization in them.
I.E. + 50 IP for 50/100 specialization for using a T4 item vs + 60 IP for using the same T8 item.