We checked in to get some more answers based on the discussion going on thus far. Of course this isn't an exhaustive list, but should give some more insight into the system.

Are there any unique/untradeable gear that you can’t attach materia to?
While unique/untradeable gear is not directly related, there are some items that cannot have materia attached to it. Also, there are some items that you cannot convert into materia as well.

Will materia be stored in your inventory? I’m worried about running out of inventory space again.
We are considering storing them in your inventory.

Will you be able to sell equipment that has materia attached to it?
You will be able to trade, etc. the same as before you attached materia. If you could trade it before, you can trade it after attachment.

By attaching materia to lower rank armor/weapons, if the stats on the item get too high wouldn’t it destroy game balance?
We have prepared a feature to prevent this. Specifically, you will not be able to attach high stat materia to low rank items.