So i know i can give Lydia weapons and she'll use them but will she change armor? i have not yet seen this happen.

Yes she does. Just put a helmet on her since she doens't already have one and she'll put it on, or find some armor that's better than her default gear.

If the armor is more powerful than the steel armor she already has, she will equip it. I have her in full plate armor right now.

i have her in full dragon bone armor with a 500 dmg enchanted 2hander, she pretty much solos giants on master difficulty