that only applies to named items.  prototype standard items are just standard items.

EDIT: to see the difference look in the market for prototype named items and compare the info tabs.   The biggest differences are usually in weight and RP

ah ok thanks, that explains why I couldn't see any difference then.

Do I have to use a T1 prototype to make a T2 prototype or will a factory made T1 item be fine?

Think of it as upgrading equipment and prototypes are the experimental versions. You need the previous level item to create the next level item.

Tiered production:
1) Prototype/Collect a standard module
2) Reverse and Produce standard module
3) Prototype t2 module
4) Reverse and produce t2 module while continuing to produce standard modules.
5) Prototype t3 module
6) Reverse and produce t3 module while continuing to produce standard and t2 modules.
7) Prototype t4 module
8) Reverse and produce t4 module while continuing to produce standard, t2 and t3 modules.

Note: When a CT drops below 40% it's advised to create a new one. This will mean creating a new prototype for that level or collecting another standard items. Standard items only need to be produced when the supply from NPCing drops to a level where production halts. Items must be repaired before they can be reversed or used in production of other modules.

If you're collecting standard modules and repairing them cheaper than they cost to make that can skip any step where production of a standard item required.

Items must be fully repaired to be used in production.

A prototype costs around 4x to 10x the cost of a mass produced item. If you're making them for yourself then sure, run with prototypes but if you die it'll be like losing a lot more robots. :@)

In order to make a T2-4 item, prototype or regular, you need 1 of the item below it to produce it.  Alexanders explanation was just long winded and confusing.

You are basically upgrading the item during production/prototyping, so you need the one of the next lower level to start production.