It is possible to upgrade some items by magically combining powers of items of the same kind in a single, more powerful item. Each upgrade consumes two items and produces one item with better stats. Newly created items can be equipped in the same slots as their predecessors and can even receive some new powers that the initial items didn't have.
To start upgrading items please enter your Workshop: click the 'Upgrade Items' button in Inventory. You'll see a dialog displaying all items in your inventory which are possible to upgrade.
Each item in the dialog is displayed with its current stats, stats after the upgrade, time required to upgrade, and the list of items which can be used to perform an upgrade. If you have one of the items which can be used to upgrade the item in the list - it will be highlighted.
You can start upgrading an item by clicking the 'Select' button. The Workshop will open with the item of your choice.