seems the armor changes are due to affinity with the npc, as he/she gets killed their affinity drops by a bt so does the armor, same thing if you dont make any xp Progress when out in field.
The armor that you see on your NPC is purely cosmetic. It has no effect on their attack/defense/MP/etc.
The funny thing is, they absolutely *SPECIFICALLY* addressed this very misconception in the last patch. If you do "let's chat" the NPC will explain that the gear you see on them *may not necessarily be the gear you think it is.*
Armor is completely
random. My NPC decided to start walking around in Lv.1 RSE the other day and I can assure you she and I are quite amiable.
On a side note, I was just offered Weapon Upgrade #4 tonight. She's about 3/4 of the way to 55 (I can tell by talking to her now). I'll post damage details once the AH gets a Lance in stock tomorrow.