It gets damaged. I don't know the exact mechanic but i presume there is a type of health point system where the number drops with using items, armor for being hit weapons using them or dealing damage with them. I noticed that helmets and shoulders as well and bows and arrows get damaged often. Makes sense as when getting hit those would be more easy to hit first or dealing damage from afar would probably have more use too than up close melee.
Also there may be a random element added in as it would seem that what breaks, like bow or arrows or which arrows if you have more, doesn't seem to have a pattern, is whatever. Also it seems that losing battles have an increase chance to have items break. But i don't know, maybe get more hits when losing battles so that's why it seems like this. Could also be possible that the HP number to be different to each type of item and its quality. Upgraded items seem more resilient. Body armors maybe are native more resilient than head, shoulders, hands and feet. Melee weapons seem most resilient as until now i had none getting damaged. Foot armor also but most of my play time until now i was on foot and maybe that played a factor, so less chance to get hit in the legs.
When items get damaged they get that red flag on them, an added status above its name and lowered stats.
