In the Alchemy Workshop you can Dismantle Lv. 1-3 Equipment into fragments. These fragments (100 of them) can then be crafted into a random Lv.4 Equipment.
To craft Lv. 5-8 Equipment, combine 3 of the same type of lower level Equipment. Higher-level Blueprints for Equipment will be unlocked as you progress through the Campaign. Tap on "Dismantle" to access the dismantle area.