I'll just quote the intro here, head to the link for the full monty... http://www.mmo-champion.com/content/2541-The-Great-Item-Squish-(or-Not)-of-Pandaria
Big Number Syndrome
Hey, our stats are growing exponentially. If you look at everything from the Strength on a weapon to the damage being done by a Fireball crit or the amount of health the Morchok boss has, they look downright absurd compared to the numbers for level 60 characters in the original shipping version of World of Warcraft. It’s not exactly a surprise that we were going to end up here, and we knew where we were going every step of the way, yet regardless, here we are.
Fig. 1. Item level vs. character level. Brown = vanilla. Green = BC. Blue = LK. Red = Cat.
The numbers grew so much primarily because we wanted rewards to be compelling. Upgrading from a chestpiece that has 50 Strength into one that has 51 Strength is undeniably a DPS increase for the appropriate user, but it’s not a very exciting reward. Such negligible increases can drive players to do some weird things, such as skipping over tiers of gear or entire levels of content. This is particularly relevant when we’re talking about a new expansion. We don’t want level-85 players to have a reasonable shot at level-90 dungeons and raids (or PvP opponents) just because that content is balanced for gear that isn’t much better than what the level-85 players have.
So we arrived at this point in a logical fashion, and we don’t really think we should have handled things any differently. However, it’s still a weird place to be, and it’s about to get weirder.