Salvage is the ability to reclaim the basic materials from tools and armor. This is a child skill of Repair and Fishing, averaging the two levels together. It is unlocked when your repair level reaches 25. At lower levels you can only salvage fully repaired items. After unlocking Advanced Salvage, you can salvage damaged items. You will receive less component materials from a damaged item when compared to an undamaged item. The level of damage does make a difference as to how much you can salvage. To salvage, right click a gold block while holding a tool or some armor. Raw materials will pop out of the salvage anvil.
Arcane Salvage Unlocks at Salvage level: 150 [default config has rank 1 at level 125]
This ability allows you to get enchanted books when salvaging enchanted items. Depending on your level the chance of successfully extracting a full or partial enchantment varies.
When an enchantment is partially extracted, the enchantment on the book will have a lower level enchantment compared to what it was on the item.
Advanced Salvage Unlocks at Salvage level: 500 [default config @lvl350]
When unlocked, this ability allows you to salvage damaged items. The yield percentage increases as you level up. A higher yield means that you can get more materials back. With advanced salvage you will always get 1 of the material back unless the item is too damaged.
To illustrate how this works, here's an example: Let's say we salvage a gold pickaxe which has been damaged for 20% of its durability (80% left); this means that the maximum amount you could get is only 2 (because the pick is crafted with 3 ingots - each worth 33.33% durability) which is equal to 66.6%. If your yield percentage is below 66.6% you are not able to get 2 ingots. If it is above this value you are able to gain the "full amount" as permitted by the item's durability, which means that you will get 2 ingots.
The item that is being salvaged can only yield the valuable components. As in our example, that would be three gold ingots for a gold pickaxe, with each ingot requiring an advanced salvage yield percentage of 33.3% per ingot. For a gold pickaxe the wooden handle will not be salvageable. The maximum yield is constrained by the lower percentage of either your yield percentage or the item's durability percentage. So using our example of a gold pickaxe, if your yield percentage is at 100%, and item has full durability, then salvaging the item will yield three gold ingots. However, if the durability of the item is only at 80% then the most you can get would be two ingots (66.6%) from a gold pickaxe even if your yield percentage is 100%.