The idea being basically this.

The Longer you wield a certain weapon the better it becomes. It wouldn't get better just buy carrying it, you would have to wield it, though swapping it out for another weapon wouldn't help/hurt you so long as you held it in inventory. Nor would having it looted as long as you got it back.

Favored armor: Same as above, except only matters if you wear it.

This only affects specific pieces of armor or weapons. Not armor types or weapon types. So if I was wearing a moonstone Breastplate it would get better. But if it was taken away from me and I got another, the benifit wouldn't be the same. But if I lucked out and got that specific piece back, then great!

Think of it as wilderness time for equipment.

Prog gear should probably be exempt from this idea.