These rules are not well written. If you're looking for 100% clear rules in the books, give up. They are not present.
By the written rules and the information gathered from the WotC representatives (mostly Andy Collins), this is the best interpretation of the intent of the designers that I have seen:
Armor and Weapons *do not resize*. Other magic items (rings, cloaks, amulets, boots, etc ...) do resize to fit different size creatures, though the creature must be capable of wearing that type of item. For instance, a human wearing boots polymorphed into a bear will lose his boots because the boots are designed to fit a humanoid foot. (These rules are in the DMG, pg 213).
Polymorph changes the shape of the target. If his items can be worn by the new shape, the items will remain. If the new form can not wear the item, the items will merge with his form.
Most magic items (jewlery and clothing) can be worn by a similarly formed new shape because those items will resize to fit the new shape. The magic of polymorph does not change their size, but the magic of the item allows them to remain. For instance a medium human that polymorphs into a large centaur can still wear a cloak, bracers, rings, amulets, headbands, vests, etc ... but not boots.
Armors do not resize magically, so the polymorph often has an adverse effect on them. Unable to fit a new form, the armor generally merges with the caster and is lost. When the new form is very similar (same basic structure and size), the DM can merge it or let it remain as he sees fit and stay within the intended rules. It becomes a DM judgement call.
Weapons (and shields) do not resize magically. However, they often do not need to resize to remain after the merge. If a PC is holding a weapon or shield, that item should only merge with the form if the PC's new form does not have hands capable of holding the item. Again, the DM is free to decide what can and what can not be held by a particular form. A medium creature holding a medium greatsword that is polymorphed into a large giant should keep that greatsword, but it will remain a medium greatsword. If the DM uses the alternate rule on page 27 for weapon equivalencies, that medium greatsword could be used as a large longsword.
Polymorphing creatures do not get to decide whether an item merges or not. If it can stay, it stays. If it has no way of being worn by the new form, it merges.
Polymorph has billions of possibilities when you consider the combinations oforiginal form and new form. A complete set of rules would be near impossible. You'll just have to play it by ear, but the above guide lines are a good place to start. They appear to be balanced and fairly easy to follow.