Yes. Most evolving items need to be equipped - one way to check is to look on your character screen and at the top where the tabs are there is one that says "evolution" this will list which ones are active and evolving and what level.
Dropped today from A Terror Carver. Side note, since no one has mentioned it yet. I tried a wide swath (9 different items) of older evolving items, trying to transfer experience in the machine in Corathus Creep. Nothing seems compatible.
I picked up one of these couple weeks ago from a random trash mob in static Kael. Still haven't found out what the point of this thing might be. I have no intention of trying to level it until I learn the reason for doing so ~