Ok so first off , your shadow starts at lvl 7 and recruit valour rank.
First step to do is to go to your shadow's interface - backpack -> shadow->attributes.
There you will see 2 bars on the left ,one is for expirience and one is for valour.
When you get your shadow it will already have enough Exp to level it up to one lvl below your own.
For example i am lvl 12 and my shadow has enough EXP for lvl 11 exacly.
To make the transition from one lvl to another you need twilight coins.(
http://warofdragons.com/artifact_info.php?artikul_id=23626) The ammount you need increases as does the ammount of exp as you pregress to higher lvl.
Once you have the required ammount of exp and coins you can click the ""Raise Level" button.
Its completely the same for the shadow's valour rank. Only difference is it needs valour ,not exp. and that it raises your shadow's valour rank and not level.
Now onto how to equip your shadow.
When you first get your shadow he will be naked.
After completing one of his first quest you can get him a cloak which will make into one of thee classes-bonecrusher,dodger and heaveweight.
But we cant have your shadow run around in only a cloak.
Your shadow cannot wear normal armor so you need to take normal armour and transform it to fit your shadow. You can do so by using a Shadow Transformation Charm (
http://warofdragons.com/artifact_info.php?artikul_id=23627) on a piece of armour of quality green,blue and artful(purple).The charm can be bough from Lady Dawn'(the same one who helped you with your shadow problem)'s shop.
One trick you can use is
That if you arent in a hurry to get your shadow ready to kick some butt.
You can wait until you lvl up and then you can give your non-transferable chess armour to your shadow using the charm. This way you could same some gold as you will not be buying a brand new set of armour for him.