UPDATED:
Legendaries can drop at any time, anywhere, albeit rarely. With the Loot 2.0 updates, new heroes from lvl 1-59 will get a guaranteed legendary drop for the first kill of The Butcher, Belial, Azmodan and Diablo.
Characters below level 11 are unlikely to find Legendary items, because they have a minimum level requirement. Currently there are no Legendary items available below level 11. (source)
For level 60 characters, you should get a guaranteed legendary drop from Diablo every time you kill him after resetting all of your quests and working your way back to him.
Higher tiers of Torment supposedly include an increase in legendary drop rates, but the exact amount of the bonus has not been disclosed. It doesn't seem to be major, though, so you should pick a lower tier of Torment over a higher one if you will kill significantly faster in the lower tier.
Note, however, that some legendaries will only drop in Torment I - VI.
Original answer:
Yes, there are set and legendary items.
Many of them will be available through crafting, requiring the recipe to drop.
Others will drop randomly, but extremely rarely. This can happen at any level, as not all legendaries are high level gear.
The best legendaries will be Inferno drops.
However, it has been stated that the very best items in the game will not be the set items or legendaries. Instead, the very best will be Inferno level randomly-generated rares.
As per DiabloFans' list from the Bradygames Strategy guide:
Firebats - Reduced Mana Cost
Haunt - Boosted Damage
Poison Darts - Boosted Damage
Spirit Barrage - Boosted Damage
Plague of Toads - Boosted Damage
Corpsespiders -??? (Transcribed improperly)
Locust Swarm - +% crit chance
Firebomb - Reduced Mana Cost
Zombie Charger - Reduced Mana Cost
Wall of Zombies - Reduced Cooldown Time
Acid Cloud - +% crit chance
Summon Zombie Dogs - Reduced Cooldown Time.
Exact magnitude varies with level and the exact item. Most of these show up on Voodoomasks / Dolls / Ceremonial knives, but they can appear on regular helms, offhands, and weapons as well.
Best Answer
Though these items are fairly rare, I began seeing them drop around the end of Nightmare, and with increasing frequency through Hell and Inferno (though I can't say I've seen any that were any good yet). Expect rare items with good skill modifiers to be extremely expensive as a result - you have to be pretty lucky to get a good skill modifier in the first place, and a lot of the ones I've seen have been on otherwise trash uncommons.