I wrote some information about it in this post. I actually didn't know it could be used for items. My original understanding was that listed in the post, to be usable on objects and monsters and being able to modify the properties dynamically via tags and lua scripting. It seems to be more complete than the information available in this thread thus far. IMO it is a very powerful tool that has not yet been used to its full potential.
Im having trouble finding other files like the power armor file so I can modify it and have a Original enclave armor in starbound. And Trouble ..... well after I finish the art how do I Transfer the merge file and such...... I need a video tutorial. Plus please post the files for the Heavy power armor.