Quote Originally Posted by Linaphor View Post
"The selected item level too low to maximize materia potential"
As said above - it basically means that not full (or even none of the) potential of the given materia will be used. Each gear item have "hidden" stat caps which cannot be exceeded by any means (apart of temporary increase using potions and food buffs indeed). If the increase is 0 then there is no use to meld that materia at all (with one exception of Relic quest melds where some actually have 0 increase but it doesn't matter as that's what the quest require). If the gain is let's say +3 instead of full potential of +4 you'd most likely still use it. I'm on the same server so you can try to give me a shout in game if you need any help or have any (not only materia / crafting) questions