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How does diminishing loot works?


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I imagine it has been asked and answered before, but I couldn't find and relevant (new) posts on the forum. So, according to others (and personal experience), when you stay too long in a certain area and farm NPCs for loot, you only get "good" loot for some time. After a while, your farming will aword you with less and less "vauable" loot, so my question is: "how does that work?" What are the parameters to decide if my loot is or will begin diminishing. Is it the entire zone (Queensdale, Mount Maelstrom, ...) or areas inside the zone, is it the type of the NPC, is it the characterr I am playing with.

What do I have to do and for how long in order to reset this diminishing loot return?

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