You will eventually hit a roadblock on your first playthrough, as you will not be able to upgrade any weapon past Level 3. The game has hidden the mechanics of the upgrade after you accomplish a certain goal. Here is a guide on how to upgrade weapons past level 3 in Yasha: Legends of the Demon Blade.
How To Upgrade Weapon Past Level 3

Acquire a Legendary Weapon Fragment to unlock the Level 4 Upgrade for your weapon. You will need 10 Legendary Weapon Fragments and 500 Soul Power for a Level 4 upgrade of any sword.
Spending Weapon Fragments and Soul Power will only upgrade the weapon to level 3. Once you reach level 3 of any weapon, the game will ask for another type of Weapon Fragment, different from the common ones. To put it simply, you will need to have a Legendary Weapon Fragment to upgrade any weapon past level 3.
You will not gain any Legendary Weapon Fragments on your first, second, or third completion of the game. You can only get this fragment after you have completed the Arc storyline for the respective character. Completing the Arc storyline will unlock a new feature in the game titled “Inferno Scroll“, allowing you to change the difficulty of the game.
How To Get Legendary Weapon Fragments In Yasha Legends Of The Demon Blade

Talk to the Miko NPC in the training ground after completing the Arc for the character, which comprises three chapters. Here, you need to set the difficulty to your liking. By default, it is all set to 0, we need to add or subtract numbers to make the game hard for us. On the bottom of the screen, you will see the percentage drop for Weapon fragment, Soul Power, and Legendary weapon fragments.
Adding more difficulties will increase the percentage of drops. If you are feeling confident in your abilities, then you can take the amount to 100%. After setting up the perfect difficulty, head out to the game and start killing as many demons as possible. You will notice the common minions are harder to kill, and more of them will spawn in a small area.
Unless you spike up the difficulty to a 100%, you will probably need to complete the level multiple times to gain the required amount a sufficient amount of Legendary Weapon Fragments and Soul Power to upgrade the weapon once. Check our guide here on the best tips to get you started in Yasha: Legends of the Demon Blade.