What happens when you select the Enchant Weapon skill (in the Path of the Warrior Gods)? You should be able to learn the skill the same as any other, and level 1 is available at character level 1, so the checkmark confirmation button should be enabled when you select the skill.
Once you have Enchant Weapon, clicking on an equipped item with a charm quality will open up a charm window where you can drag and drop charms to permanently add them to the equipment.
What are your resistances? I don't recall what kind of damage blue dragons do (are they the ones that freeze you for about 5 seconds?), but you could try a distance attack (bow, Hell Spikes...) or something like Burning Wall, where you wouldn't need to stand toe to toe with them for very long.
Resistance, strength or agility potions would give you an edge, or you could try just using more
restoration potions.
Other than checking with Kroxy for better equipment, etc, there are various combat techniques described in the topic
Chasing Josie... which should be effective against any other strong opponent.
