Actually if you set the item ability of e.g. +15 damage (Claws of Attack) and have let's say 5 levels of it and attached to the item (Item-> Abilities - Abilities), use an event you want the unit to acquire the new level of ability and then use "Unit - Increase level of Ability for Unit" and for the ability use the item's ability. The downside is that once you drop the item, the level returns back to 1. This is however easily solved, by storing the level of the ability directly to the item through a hashtable process and then load it once the unit acquires the item.
However, since stat modifiers tend to get buggy, I would definitely go with visual enhancement instead. Thus, I suggest making the item Charged, in terms of classification, and once you want the ability to increase in level, set charges of the item to (charges of the item + 1). This will eventually have an indicator, which much friendlier to players' understanding of what's going on (as neither of the two options I suggest will allow you to refresh the item's tooltip - in that case, make sure your tooltip is flexible enough, e.g. The damage of this item is upgraded as (level of item * 10) [or any other formula you want]). To increase the stats bonuses, e.g. Attack Speed, Attack Damage, Max Health, Max Mana, I really recommend you used a library (we have quite a lot around, with BonusMod being one of them).
