Diablo – When to salvage legendary items

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.

Twinking

"Twinking" is the general term for giving items to lower-level characters who can make better use of them. Many will be usable by any character you create, but occasionally, there will be some items (class-specific ones, in particular) that won't be useful to any of your characters if you've got a high-level character of that class. If that happens, just give it to a friend or sell it off in the Auction House - there isn't much point to keeping those, except for...

LLD (Low-Level Dueling)

In Diablo II, PVPers came up with a concept called Low-Level Dueling. They'd set a max level limit for the characters, which also limited the power level of items you were dealing with. If/when PVP is added to the game, LLD may become popular again. If that happens, there may be some low-level items that become particularly valuable, just for the fact that they are very powerful for their level requirement.