Most resources in the game have a "Specialization Track" that players can level up. As resources are gathered, the specialization for that specific resource gains experience.
Achieving higher levels unlock unique recipes and grants bonus rare drops just for that resource.
This mechanic allows players to specialize in gathering their favorite type of wood or ore and earn lots of bonus rewards.
Only vanilla items have specializations. You must pickup the items off the ground for them to count. Items purchased or traded by any means do not improve specialization.

Bonus Loot when gathering

As players increase Specialization for a specific item, they will start receiving Bonus Loot as they gather raw materials. Higher specialization levels increase the chances of receiving loot.
This gathering loot will be a Compact version of whichever material is being gathered.
For example, a player has Specialization 7 in Wheat and has higher chances to receive Compact Wheat every time they farm wheat. This Loot bonus goes directly into the players inventory and does not count towards further increasing Specialization levels.
Read more about how to improve Loot chances here