How to upgrade? you have to purchase an upgrade scroll from [Scrolls] Charon, which is an NPC that's located near Anvil (type /town in chat at moradon zone and then go up the stairs)
Once you purchased the required scroll for upgrade (under your item's stats you see "item grade", it's based on that +-)
High Class - Blessed upgrade/elemental/stat(Str/dex etc.) scroll
Unique item - Blessed upgrade / elemental scroll (elemental is used in order to upgrade from 0 to +1, after that you would have to use normal BUS)
Middle class - Upgrade / elemental scroll (middle class item)
Low class - Upgrade / elemental scroll (low class item)
^I believe you would get the idea with the rest of the scrolls after that.
As for the upgrading procedure, note that you would need 1 upgrade scroll in order to increase the grade of you item (e.g. from +1 to +2), elemental scroll is used in order to add an elemental damage on a weapons or unique weapons (turn unique items from 0 to +1).
Just visit "Magic Anvil" and right click on the item you wish to upgrade, drag the scroll(or right click it as well) into one of the slots and hit Confirm or Preview if you wish to see the stats on it if you succeed to upgrade.
-Note, if you try to upgrade an item and burn it, there's no way to restore it. It'll be gone forever.
About rates, the upgrade rates were never published. I believe the publishers have their reasons for not revealing such an information.
I can't seem to get a unique item to upgrade. Are all unique items upgradable? How do you tell which ones are upgradable? Do you use a Blessed Upgrade scroll or something else. Blessed elemental scroll?