Armor and weapons drop at certain levels (see Elite Items descriptions)
The levels on gear will contribute to your overall attack/strength level, Your attack level is an average of all gear currently equipped/held.
If for example all your gear is Level 20, your attack/strength level will be 20.
If one piece of gear is lower than 20, your overall strength will be lowered by a percentage by that piece of gear.
Your attack/strength level is important when versing Elites, If your attack level is 20 and fighting an Elite that is level 15, you will be able to defeat them easily. Whereas defeating an Elite higher than your attack level will be more difficult.
Your level will determine what level Elites spawn at around you in the wild and in events.