Items forged can be Normal (Grey), Rare (Blue), Epic (Purple) or Legendary (Gold) color indicated by the background and mouse over.
Rare, Epic, & Legendary give a boost to each non-zero stat bonus by +3, +6 & +9 respectively.
Chance of Rarity
Both forged and dropped items can be acquired with the bonus. The chance of crafting a higher quality gear can be increased by wielding Forge Blade during the process or by wearing Blacksmith uniform.
Note that Blacksmith uniform doesn't stop scaling after level 100.
The chance of dropping a better item depends on the Challenge Level you are currently playing. It affects boss drops, monster drops and chests.