Not trashing on you, but there's a lot wrong here. Color of the orb and iicon background (after analysis) varies depending on the stat boosted by the item:
HP = Red, attaches to Shirts
DS = Blue, attaches to Accessories
DF = Grey/Black, attaches to Pants
AP = Yellow, attaches to Gloves
MS = Green, attaches to Shoes
Each one is assigned a Rank letter, with A being low and C being high. Higher ranks give higher stats. The color of the name and border is effected by the rank, and can be green (low rank, common) blue (mid rank, uncommon) or purple (high rank, rare).
Kamemon in Western Area Village and the blonde DATs woman (with the crazy crack addict eyes, forgot her name) in Snowstorm Village both handle Equipment Merge as well.
And for the record, you can remove Attributes from the slot at the NPCs, just like adding them you give them the item, click the one you want removed, and hit "Deactivate". Shoes and Accessories have one slot, Shirts, Gloves and Pants have two. Finally, every equipment item has a % next to the slot. This shows how much of that attribute is actually given to your character. For example, if a slot says 55%, and you have an Attribute that gives 20 AP, you're actually only getting 10 AP out of it.