It affects everything from crits to the quality of materials, except hit chance, hit chance is unaffected for balance reasons.
6-18 luck improves everything luck based with diminishing returns, examples: 5 luck - quality 50, 6 luck - quality 90, 7 luck - quality 115, 8 luck - quality 125, ect
5 luck gets you what we have now
4 luck gets you a 50% increase in bad stuff happening to you, bad materials, less crits, more enemy crits
3 luck means nothing good will ever happen, every enemy attack is a critical, every material is it's lowest quality, you will always get your lowest damage possible, flashbangs never incapacitate.