Okay this is a problemo most people have.
There is a difference between tier and star.
Stars, commonly refered to as * in the game, are the levels, or rankings, equipment has.
Tiers are the blocks, so to speak, that each floor in the clockworks is divided in. Tier 1 is floor 0-7, Tier 2 is 8-17, and Tier 3 is 18-29.
Also something to note is when a knight's equipment is better the current tier's equipment rating, its effectiveness is reduced. These effects range from lowered attack and defense stats, as well as lowered bonuses.
Tier 1: Equipment 2* and higher will be lowered in effectiveness
Tier 2: Equipment 4* and higher will be lowered in effectiveness
Tier 3: Equipment effectiveness is not reduced no matter what the *