After nearly a week without updates, Bashiok has made a post in the Diablo 3 forums revealing that Blizzard is planning for 18 tiers of item progression throughout Diablo 3 leveling. As a response to a question, Bashiok indicated that the progression through tiers will have more to do with an items visual appearance than its stats:
Blizzard Quote:
Without being able to upgrade the item to the next tier, does that mean the lesser tier item is salvage garbage?
Right, going back to the tier thing which I believe was a misunderstanding of me referring to the visual sets. It doesn’t have to do with item stats at all really, just cohesive armor looks.
There are better and better items as your progress through the difficulties and they can roll out more affixes as they go higher. So to answer your question, yes, worse items would be sold for gold, salvaged for crafting materials, or otherwise ‘traded’ away.
Bashiok’s answer indicates that there may be an overlap between the later items of one tier and early items of the next. He also mentions that the tiers will be divided between the 3 difficulty levels: Normal, Nightmare, and Hell.
Blizzard Quote:
[The item tiers] are distributed through difficulties with each difficulty dropping items of a specific number of visual sets. So, for instance, in Normal you may see set looks one through five dropping. In Nightmare you may see the visual sets six through ten. etc. Just an example, I’m not sure how exactly they were decided to be broken out.
Concerns were then expressed about whether or not the 18 tiers (which comes out to 6 tiers per difficulty level) would feel like sufficient enough progression while leveling throughout the game, which led to further elaboration by Bashiok:
Blizzard Quote:
So yeah, this was more or less how I thought you guys had made the system… as you have played the game, does 5/6 set visuals per difficulty feel progression enough?
I think it feels really good. You’re not getting whole sets dropping for you so it’s a pretty constant upgrading process. You’re probably not running around with a complete looking set for long unless you’re denying yourself upgrades to make a cohesive look, or just getting bad drops.
Though it may seem that your characters look during Diablo 3 leveling will only change 6 times per difficulty, players should keep in mind that they will not always be geared in full sets of a given tier and will mostly be mixing and matching. As a result, a characters look will change more times than is implied by that number.

In another related post, Bashiok made mention of the games salvaging mechanic:
Blizzard Quote:
It has a name. It is not Salvage Cube. The name does include Cube, though. The name is sort of a spoiler, which is why we haven’t revealed it yet.
Although Bashiok did not reveal the name, you might recall that Jay Wilson called the salvage cube the “Nephalem Cube” at BlizzCon 2010 and is a name that could definitely be considered a spoiler.
If you’re unfamiliar with that part of Diablo lore, the Nephalem were the first generation of humans born into Sanctuary. As offspring of both angels and demons, they were born with great powers and the potential to be stronger than both.