There should be an additionnal text in the description that describes the impact of the item condition. For example, a Badly Damaged Axe's description could end with "This axe is not balanced which makes it harder to recover after a hit." These effects could even be randomized, for example :
damaged -> 50% dmg or 50% attack speed or 150% recover...
badly damaged -> 25% dmg or 25% attack speed
(you don't see these numbers in the description, but a text that represents them)

Also, the item condition of food seems to be ignored.