Here's the quick of it since I've been lazy to do the complete writeup:

The rule of thumb is weapons grant the abilities you can take in combat and armor (not accessories) improves your stats. It isn't a hard rule but it applies to 90% of gear. Accessories are more of a grab bag of effects, some grant new moves, some increase stats, some like the Guts Belt doesn't do either but has another effect. For example, the Guts Belt grants the Guts status which reduces taken damage to CurentHP - 1 when you take mortal damage and current HP > 10% of MaxHP.

Weapons are separated into various categories where same category weapons have similar effects. The Nun Chucker is a mace-type weapon which have strength-based moves that ignore some of the enemy's stamina. The Blade is a sword-type which usually do physical damage that can inflict a Bleeding damage over time status, in this case the skill that does this is Double Swing. There's no restrictions on what weapons can be equipped except you can't equip duplicate weapons because it is entirely redundant.

Armor has more obvious categories and each equipment slot primarily focuses on two stats with subcategories that favor one or the other. Armor affects stamina and willpower with light and heavy armor focusing on willpower and stamina respectively. Gauntlets affect strength and Æther, helmets affect Max HP and MP, and greaves affect agility (turn order and physical evasion) and luck (crit chance and magic evasion).

Finally characters can change equipment mid-battle but it has some hefty consequences: You need to spend 50 energy and the character loses their turn and the benefits of their equipment for that turn. You can change your party without consequence midbattle though so you can change somebody's equipment then shift them into the party reserves for one turn then bring them back out next turn once the changing equipment penalty ends. The exact process isn't final but it's a baseline that I'll tweak once I can see how the entire game plays out with this implementation.