I believe the 'difficulty' is built up of a combination of gear quality level, skill points attained/assigned, ability points attained/assigned, and whether the quest is intended to be completed in a group.
The reason I state this is for example the PvP quests in Fusang, the difficulty marked on the quests will vary between 'Very Easy' and 'Devastating' on an identical character using identical abilities based on the number of people on your team.
I've also noticed quests in the world changing marked difficulty based on subsequently gaining more skill points without changing any gear (ie: going from devastating to hard while remaining at a QL of 8, for example).
This thread here further discusses the possibility that this difficulty level is influenced by a combination of Item Quality Level (QL) and Talisman skill level - based on the fact that Talisman skill level increases important base stats (Health Points, Magical Resistance, Physical Resistance) which would dramatically improve survivability.