Legendary drops

Does legendary equipment drop or can you only get from using souls? If it does drop, is it best to farm boss levels? The last boss on a stage or?

Legendary gear does drop, albeit not too often, maybe 0.1% (1 in 1000). That's low, but much better than Inferno gear... I typically farm on boss levels for gear because the boss is a guaranteed drop, but boss drops don't seem more likely to give better items. Your best bet is to farm the first boss level of the first odd numbered stage (i.e 1, 3,5, 7, or 9) that drops the tier of equipment you seek. The best bet for getting good drops (and also a much better way to get gold than to buy it) is spending 50 souls on infinite stamina and grind a few hours.