In most areas, equipment upgrades can be done rather infrequently, as the enemies do not pose much of a problem. At lower levels, the bonuses offered are very small, so upgrading every 5 levels may not be necessary or cost-effective, so it may only be necessary to upgrade every 20-25 levels. At higher levels, enemies pose more of a threat, so upgrading every 10 levels may be necessary at times.
In special areas, like the Challenge Realm and Jurassic Wars, monsters continue to get stronger based on your level, and not necessarily the equipment you have on. Therefore, it may be necessary to upgrade at every opportunity.
Your pet selection may also impact your need to upgrade. If your pet is absorbing all of the damage from enemy attacks, then frequently upgrading your armor may be unnecessary (except to take advantages of other bonuses, like mana or stamina). These added bonuses may give you access to additional spells or styles which will make your combat more effective.
There’s no surprise that an equipment upgrade is highly recommended before attempting a new dungeon. If you find yourself halfway through the dungeon and encounter an enemy you cannot defeat, then you may find yourself exiting the dungeon to upgrade, and then having to restart the dungeon from the beginning. Upgrading before attempting the dungeon will greatly reduce this possibility.
From a non-combat perspective, upgrading your armor to provide additional gathering or tradeskill bonuses will allow you to harvest and craft better items, resulting in more experience from your queue. Keep in mind that there is no need to upgrade unless you can get at least 25 additional skill points, because 25 points are typically required to access the next level of materials or to be capable of using a new plan.