Salvaging gear can be done by either using the Salvaging Workbench or the Scavenger's Toolkit on gear. Whenever gear is salvaged, depending on the type of gear, it will turn into either Scrap Metals, Scrap Linen, Wood Chips or Rare Metal Shavings. There is also a 20% chance of giving Old Artifacts which can be used at the Arty's Library of Knowledge and Arty's Special Items Section for unique items and experience.
Scrap can be used as a currency at Iron Ike's Scrap Shop, Fancy Fiona's Scrap Shop, Woody Willow's Scrap Shop and Tinkering Ted's Scrap Shop for unique gear and hard to get crafting supplies.
The minimum and maximum amount of scrap is determined by the following formula: $$Amount_{min} = ItemLevel \times 5$$ $$Amount_{max} = ItemLevel \times 10$$
see Salvaging Workbench for a comprehensive list of all salvageable items and the results.
There is a 20% chance of receiving Old Artifacts when salvaging any item. The minimum amount is always 1 and the maximum is determined by the following formula: $$Amount_{max} = \max\bigg(1,{\frac{ItemLevel}{5}}\bigg)$$
On average, the amount of artifacts is determined by the following formula: $$Amount_{average} = \frac{\max\bigg(1,{\frac{ItemLevel}{5}}\bigg) + 1}{10}$$
See Buying Artifacts for the best way to turn coins into artifacts.