Could someone explain to me how this is better than it sounds on paper? Because as far as I can tell it sounds like temporary benefits for inevitably failing items.
How is it temporary? If you encrust an item it gets the bonuses that the encrust says it gives. Eg: Gaudy Baubling gives +5 Aetheral & +5 Rightousness damage and some special effect (Blinds enemy). There are chances of getting additional penalties (instabilities), which serve to prevent you from over-encrusting, but you have to be almost trying to get tons of instabilities.
Perhaps I just misunderstood when I read the wiki. I read the instability as causing your item to fail or break. I'll have to look over it again.
Instabilities only happen with multiple encrusts, so only crusting a single crust will get you that bonus permanently with zero downside except the potential inherent ones. Like tying grenades to your sword. There is one rare instability that makes an item completely untenable (haematic drain, IIRC), but you won't get it, ever, if you don't do multiple encrusts. Even at that, the cheap low-power encrusts can usually be combined with no instability at all.
Also, instabilities that debuff you... I've had fun sending those debuffs onto the enemy via Magical Law's spell. Rune of Objection. There's interesting things you can do with encrusts
Usually when I encrust(which is almost never), I only tend to encrust one or two equipped items, and even then, only one encrust each. Tell me, is it possible to give every gear slot one encrust each without much instability trouble?
Sometimes you get unlucky, but encrusting just a little isn't usually a problem. It's when you start stacking multiple encrusts (let alone using the same one multiple times) that the instability rating (the little purple icon in the encrust description) starts to go up.