If equipped items become bound to you, where do all the items in the auction house come from?

They are from people crafting them for the sole purpose of selling them. One of the good things about buying a recipe is that it is not only cheaper than buying the item itself, but you can then use the recipe to put together those raw materials again to make an item to sell, hopefully for more than you would've gotten for just the raw materials. Note that crafted items will sometimes get special attributes that you can't get on dropped/store-bought items, making them even more valuable.

Note that some items can be unbound via Vise, who can unbind your items for you, but at a fee (quite a hefty one at that).

         Item   ↓        Energy (CE)↓
Unbind 1 Star Ticket        100
Unbind 2 Star Ticket        200
Unbind 3 Star Ticket        600
Unbind 4 Star Ticket        1800
Unbind 5 Star Ticket        4000

That's why you see some 5* items in the AH. You can't craft it up to a 5* without investing heat, and heat only comes from journeying through the clockworks, which means some users have the items bound to them, then unbind when they've hit 5*.