Magical Salvaging is much like Disenchanting in WoW. You can Salvage almost any piece of Armor or Weapon that is Uncommon or above. When you salvage and item you have the choice of what to pick type of Fragment you would like to obtain. If the items has Wounds on it you can select to pull a wounds fragment from the item. Unlike the other fragments that you can pull from an item the wounds fragment will always be that items color.
For example say you have a blue piece of armor. If you chose a Strength Fragment you'll usually get a Green Strength Fragment. If you choose wounds it will give you a Blue Fragment. Even if you fail when salvaging an item you will still get something. If you fail you will get a couple magic essences, and if you succeed you will get magic essences in addition to a fragment. Also if you succeed there is a chance your Magical Salvaging skill will increase.
Along with being able to salvage old armor and items that you find that you don't want you can also salvage Sundered and Shattered items to receive essences and a chance to increase your salvaging. Here is a quick table of what level your skill needs to be to salvage what items;
Skill 1 - Can salvage items levels 1-10.
Skill 6 - Shattered Equipment.
Skill 26 - Sundered Equipment.
Skill 51 - Can salvage level 19 items and below.
Skill 66 - Can salvage level 21 items and below.
Skill 76 - Can salvage level 23 items and below.
Skill 86 - Can salvage level 25 items and below.
Skill 96 - Can salvage level 27 items and below.
Skill 106 - Can salvage level 29 items and below.
Skill 111 - Blue level 27 Items.
Skill 116 - Can salvage level 31 items and below.
Skill 126 - Can salvage level 33 items and below.
Skill 136 - Can salvage level 35 items and below.
Skill 146 - Can salvage level 37 items and below.
Skill 161 - Can salvage level 39 items and below.
Here are a few links that I found useful with Magical Salvaging -