from Arreat Summit:
Selecting Prefixes/Suffixes in Imbuing
Imbue is a quest reward. You receive one Imbue per Difficulty level after you complete the quest. You can save your Imbue for later if you wish. To use it, you must create a game or join a game on the same difficulty, so create/join a Normal Difficulty game to use your "Normal Imbue".
Imbue creates a new rare item out of the base item you want to imbue. The stats of the base item do not matter as the item used is only used to determine what type of rare item will result from an Imbue. Any properties of the old item are lost when the new rare item is created. Having a Superior Item, such as a piece of armor with higher Defense does not matter since the item is only used in determining what type of Rare item is created. Therefore, it is possible to get a lower Defense on a piece of armor or equipment if you do not receive an "Enhanced Defense" Magical Prefix.
For the best result you might want to save your Imbue for later. It's up to you to decide. If you save your Imbue you can find the best type of item to imbue such as Ornate Plate vs a lower quality armor. Also you might want to wait until your character level is such that all Magical Prefixes and Suffixes are available. As to which item to Imbue, you might want to pick an item type you're unlikely to upgrade often such as Belts, Boots, and so on. We'll leave the decision to you.
The Rare item will be created in the same way as any other Rare Item is created. The level of magical properties selected is set to Character Level + 6. So higher level characters will have more Magical Prefixes and Suffixes options available to them which may explain why higher level characters receive "better" stuff. This also explains why low level Imbues often result in "junk" stats. Remember, Circlets can increase the Character Level.