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It refers the the 'budget' that an item has for allocating stats.
A higher iLvl means a higher budget which means that overall more stats can be put on that particular item. Usually a higher iLvL item (when properly itemised) will be better than a lower iLvL item.
I'm not sure it works the same like in WoW, but I don't think its too much of a stretch to think it works in a similar manner.
Every item has what's called an item level. An item level basically dictates how much of spefic stats can be put on any piece of gear.
An example would be like this (Using made up numbers, this is just to explain the concept of item level). A chest piece has an item level of 20. Due to its item level it gets 200 Stat points to put on the gear.
So Let's say 100 Armor = 60 Stat Points.
Primary Stat (STR, VIT, INT, DEX) = 1 Stat Point.
Secondary Stat (IE Critical Strike, Magic Find, Resist All) = 3 Stat points.
Socket = 10 Stat points.
So the chest piece might have an set up of...
Random Chest (Item Level 20, Total of 200 Stat Points)
100 Armor (60 Stat Points)
+ 40 Strength (40 Stat Points)
+ 40 Vit (40 Stat Points)
+ 20 Resist All (60 Stat Points)
I'm 100% these aren't the actual numbers of what Blizzard uses, but you can grasp the concept. Higher Item Level = More Stats. Also generally as a specific stat goes up a lot, you may hit diminishing returns on stat value. So after a certain point it may not cost the same amount of Stat Points, and would cost more.
I hope this helps :3
Edited by KirbyDude65#1176 on 5/30/2012 12:58 PM PDT
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