Final answer:
The item is Dark Matter that grants the fear effect to tears in The Binding of Isaac: Rebirth, with details on its activation chance and where it can be found.
Step-by-step explanation:
The item in The Binding of Isaac: Rebirth that grants the ability for tears to apply the fear effect to enemies, causing them to flee from Isaac, while also providing +1.0 Damage Up and reducing tear size is Dark Matter. This effect's activation chance is influenced by the player's luck stat, with a guaranteed activation when the luck stat reaches +20. Dark Matter is exclusively found in the Devil Room pool, and it's worth noting that the Fallen boss draws items from the Devil Room Pool.