**Quick note** The scenarios mentioned in the first paragraph relate to JigokuSenshi's comment, "Let's say you kill a monster and it drops 20 items." ***
Now, when I say valuable to them I am speaking beyond whether or not they can physically use the item. Some people play RPGs/MMOs for the economy features alone. This item could be useless to them, but highly wanted by others. Now what determines value? Like any economy, the need or want for an item compared to its availability. Just because an item is legendary or orange does not mean it is in high demand. It only means it is in par with other items in that category, in terms of quality. If need be you would also compare its quality to its level requirement. This sorts out lower-quality items from higher-quality items within the same level range.
So in the end, all a "rarity system" is, is a way to display information to your audience and others working on the project. The approach you take depends on who you are creating this world for.
Examples of Categorization
- Item levels
- Location found