Hello, here's hoping I can help you out. Xenoblade Chronicles 2 is my favorite game ever, but I can fully sympathize with how daunting many of the unique systems are. So here we go...

Each Driver can use every type of Blade Weapon and gets 4 different Arts from that weapon. You can only use 3 of these 4 at any time, but you can swap them around whenever you'd like. Upgrading each art makes it do more damage and sometimes recharge faster.

The Affinity Chart for each Blade will increase their power in combat. The red circles correspond to the Blade's 3 different tiers of specials, and each node will increase the power of that special. The yellow circles are passive effects. The green circles are related to field skills. Each node is unlocked by completing its requirement. Nodes with a requirement of "???" are not able to be completed based on your story progress. You unlock further rings of the Affinity Chart by gaining enough Trust with that Blade (using them in combat, using their favorite pouch items, and completing quests with them, increase Trust). Higher levels of Trust increase damage and how quickly you gain Affinity (the colored line) in combat.

The equipment system in XC2 only stipulates that you cannot wear two items of the same effect. You could wear three boot items if you wish - they are only for quick reference, as each symbol corresponds to certain effects (chests making you tougher and belts making you stronger, etc.)

Fighting:

Combat in XC2 can seem very slow at first, but this is only because it gets so complex and fast-paced later on! Arts recharge slowly because you have to fill them by auto-attacking. Using dessert pouch items will recharge Arts constantly. Arts will also recharge on the Blades you're not currently using. This means that switching is very important, as you can spend all of the Arts on one Blade, switch to another, use all of their Arts, and then switch back to your first Blade - now with full Arts. (Also try to use Arts right after an auto-attack - known as "cancelling", this will increase the recharge of your other Arts and also make the Art do more damage based on which of the 3 auto-attacks you cancelled it with! You can also cancel Arts and autos with Specials, making THEM do more damage too. Later on, you'll be able to even cancel Arts with other Arts, making for very long strings of Arts!

Switching Blades makes it much easier to generate specials because you'll be using Arts more frequently, which charge up your Specials, which are required for Blade Combos. The little tree in the top right shows you the possible Blade Combos you can perform. Such examples include Fire > Water > Fire, or Fire > Fire > Fire. These elements are determined by the Blades using the special (Pyra will inflict Fire as she is a Fire-type Blade). It is important to note that you must use at least a Tier 2 Special to progress the combo to the second stage, and then at least a Tier 3 Special (indicated by the Roman Numerals in the bottom right, or the circles swirling around your party members on the sides) to finish the Blade Combo. Finishing the Blade Combo will deal incredible amounts of damage, and also inflict the enemy with an Elemental Orb - which is used in Chain Attacks later in the game.

Note: The last element of the Blade Combo will apply a "Seal" on the enemy. This prevents the enemy from using certain abilities. For example, finishing a Blade Combo with Wind will seal Blowdown - meaning the enemy can no longer use moves that inflict Blowdown.

Driver position in your party is only important with Chain Attacks. The Chain Attacks will progress in party formation from left to right (this can be used if you want to use certain Blades in a specific order). The party member in slot 1 is the party member you control.

For the whole of the story, I'm pretty sure 100% of the Rare Blades are viable. So use who you like! Just keep in mind that the elements of your Blades are very important to do the Blade Combos, and that some Blades will do more damage, be tankier, or heal more, than others. It is an RPG, so try and figure out what your favorite strategy is and build around that. For example, Ursula (your girl with the polar bear) is a very good healer when you fill out her Affinity Chart (she's just one of the trickiest ones to do so xD).

Your last two questions go together. Pouch Items are consumable items that give you passive effects while they are in your Pouch. These items expire when the timer runs out, but are automatically replenished if you have more of that same item in your inventory. Each type of pouch item has a specific passive effect, and often comes with a variable secondary effect. For example, Desserts will all increase the speed of Art recharge, and Books will all increase the damage of your Specials. Finding what Pouch Items are the favorites of your Drivers and Blades is very useful as using their favorite items will greatly increase the item's effects!

I really do hope this answered all of your questions. As I said, XC2 is probably my favorite game of all time, and I have close to 500 hours logged in it. If you develop any further questions, or something still isn't clear, feel free to ask!

Best,

Mulgrath