Basically you have a level 50 character..
If your character where's a full set of VR4 gear it fills up your bar to grant you enough veteran points to become VR4.
If you were to unequip the armor you would become back VR1.
This could be used instead of removing Veteran Ranks because it would remove the grind but still allow ZOS to make more powerful items.
Also this is a bigger example.
VR2 requires 14 Veteran points
VR3 requires 21 Veteran points
VR4 requires 28 Veteran points
you get the idea so of course mixing up armor could make you a studentdifferent VR.
Let's say you have 5 pieces of VR5 gear and 2 VR14 gear... your VR would be VR7