At lower levels, the better your gear, the nicer the One Tamriel scaling is to your level. For example, you will lose stars as you out level your gear and not replace it, and in turn your resistances as any bonuses from set pieces will also have less and less of an impact.
At maximum level, with maximum level set gear, improvements to the color of the gear are the only way to improve it.
Improvements also make a difference while leveling. My tank right now is wearing purple lvl 16 armor with blue lvl 21 rings and a green lvl 19 necklace. According to the game, the necklace is the weakest link, even though the gear is three levels below the necklace. So keep that in mind, too.
Power leveling a stamDK, currently at 40, running nothing but white training gear and I have 4 stars. Not entirely sure what zos has in mind with this rating system, but I have the feeling it may not exactly work