Improving Equipment
Paizo Clarification
No item should ever have upgrades and runes at the same time. Combining the two technologies could be a special feature in your campaign, but individual upgrades are not designed for compatibility with runes (and vice-versa).Grades of Equipment
Armor, shields, and weapons (pages 244, 250, and 253 respectively) are typically listed using their lowest available grade, usually commercial. Each grade beyond the first provides the equipment with additional statistics as given in the tables listed for the appropriate item. Equipment listed with multiple grades in their entry do not use these charts and instead use the statistics listed for each grade in their description.
Armor, shields and weapons gain more upgrade slots as they improve. Higher grades of armor add more AC and gains the resilient trait, improving the saving throws of their wielder by the listed value. Higher grades of weapons have improved damage dice and gain the tracking trait, improving their attack rolls by the listed value. Higher grades of shields have increased Hardness, Hit Points, and BT.
Improving Equipment
If you have the formula for the item you can improve an item by supplying UPB equal to half the difference between the two items, but you must work multiple days to reduce the materials needed to complete the item as usual with the Craft activity. You cannot improve an item to a higher-grade version if you're not capable of Crafting items of that level.