Specifically on how and where to get them. Are they recipes that I need certain crafting items for?

Yes, there are recipes you can either buy or find. Equipment modification have to be done back at base, and probably the most annoying thing about it, it has to be unequipped.

@obsideondarman: A few will drop, but mostly they are crafted from schematics. There's a merchant in Val Royeaux, in the southern area up the stairs, who has upgrade schematics.

Whats even more annoying is not being able to use the d-pad in the menus. I've played for 15 hours and I still try to use it. I am constantly changing characters in the inventory menu when trying to cycle through items. And then I'm like, why can he equip this.

Yeh the upgrade system is stupid but the good thing is you can completly ignore it with no sideffect. At least on normal and hard.

I've found it very useful on hard. Adding staggering affects to weapons. Adding extra health to armor has also kept me alive in a couple fights just long enough have that last person win without having to retreat or die. I am playing on hard. However, I can see it be ignored on the lower levels.