How is the additional damage computed

There are banks throughout Tamriel, mostly located in large cities. Banks will store both items and gold, and their storage space is upgradeable. But, their space is also shared among all characters across your account; this is useful for transferring items, but also means that if you fill your bank on one character, you won't have that space on any others.

The other way you can gain more storage, is by buying a horse. Most horses by default won't provide you any benefit, but once per day you can feed your horse at a stable, which will increase either their speed, stamina, or carrying capacity, depending on what you feed it. Your horse's carrying capacity bonus is then simply added to the number of items you can carry on that character.

Banks will typically appear on your map with the following icon:

And Stables will appear with this one:

Note that in some cities, there will be several different services offered in a single small building, or the same section of a larger building, all represented with one icon. When this happens, a bank or stable might be present, without their specific icon. Just mouse over the other icons in that part of the map, and it will list all the people at that location, with separate smaller icons for each.

All your stats are boosted, no matter whether they're based on your character (like health or stamina) or your actual items.

Just keep in mind that due to this items will scale similar to how your character is scaled. For example, if you're indeed level 10 and your weapon is level 5, then don't expect to have the equivalent of a level 50 weapon. It will be more likely around level 40 or even lower.