If you highlight one of your party members in the inventory screen there are a line of pegs under their armor. for me, Bethany has one peg lit up while the others are dark. what are these and what do they mean?
Armor level. You will find upgrades for companion armor as you go. They will add slots and stats to the armor that otherwise scales with level. --- All of the pieces that puzzled their journey are now in position to land.