1. "Item Level" will be based on the item's fully augmented stats, regardless of how many (if any) augments have actually been applied.
  2. "Item Level" will affect gameplay experience.
  3. Therefore: anything that is not already fully augmented will not be used at all, lest the game throws more at you than you actually capable of handling.

And since this "Item Level" mechanic will only be applied to Adoulin gear, this right here is why level 99 gear predating Adoulin will still be in relatively high demand; it will give you stats and buffs without breaking anything else.