Yes the 'crafting' is just improving the quality of items, from +1 up to +5. Yes, having more weapon/armour-smiths in party increases the rate/quality of items.
Good idea with dismantling items, will give it a shot.
The smiths levelup when they improve the quality of item. And if an item is +1, it can be further improved to +2..
With the helping - I agree, we need to put more guides/help to game, thanks.