Variables?

That's actually not to hard to figure out once you understand the coding.

It's basically like this:

Start Place:

Get Sword
Set Upgrade Level to 1
Move to Shop

---

Shop:

Ask to upgrade. If you don't want to, the event ends.

<>If you're at upgrade level 1:
...<>Ask to upgrade to level 2 - if yes, Change Sword to level 2 and remove old level 1 sword, then set Upgrade Level to 2
....<>End event

<>If you're at upgrade level 2:
...<>Ask to upgrade to level 3 - if yes, Change Sword to level 3 and remove old level 2 sword, then set Upgrade Level to 3
...<>End event

<>If you're at upgrade level 3:
...<>Ask to upgrade to level 4 - if yes, Change Sword to level 4 and remove old level 3 sword, then set Upgrade Level to 4
...<>End event

<>If you're at upgrade level 4:
...<>Explain that you can't upgrade any more
...<>End event

----------------

And this repeats for each character, basically. I actually could simplify the coding more by adding more variables, now that I think about it.

The idea of the variables in the Upgrade Demo (not actually a Blacksmith Demo, that's a separate one) is to keep track of what upgrade level each character's weapons are. There's also the pot of gold variable which transfers money into your inventory, but that's rather easy to see.