Like Thevedis said, the benefits of using the gear/weapon drop dramatically. For a weapon, you're going to hit less often, and you're going to do less damage when you do hit.

It doesn't "break" in the sense that it disappears. It just becomes less effective. You can wear it down to 0%, and still repair it back to 100% (or 75% at the repair NPC). Also, it doesn't take any more materials or money to repair something from 0% than it would from 50%.