As the metalworker of the town, he is responsible for the grade and quality of the steel used in your weapons and armor. If funds are devoted to the refining of his craft, he can upgrade the materials and skills used, allowing the creation of better swords and shields. His talents are also sought after in the construction of specific goods and building materials that are essential to other professions.
The Warcraft: Orcs & Humans Insider's Guide correctly specifies that Shield upgrades apply to all units and buildings, but incorrectly claims that Sword upgrades provide bonuses only to Footmen, Knights and Lothar, when they in fact apply to all your attack-capable units except Archers and Catapults. It also incorrectly states that Sword upgrades increase Minimum (Piercing) damage, when they do not.
The computer never researches weapon or armor upgrades. The only exception are computer-controlled units in the missions Medivh and Northshire Abbey, which begin the game with full upgrades.