The inventory screen allows you to equip weapons and armor, as well as to select up to 4 types of items (scrolls or potions) to be available for use in combat. The small inventory icon above is found on the main interface. Clicking on it opens up the full inventory screen:
The left side of the screen shows your character's current equipment and stats. The right side shows the various items you have available to equip (or just sell). To equip an item, drag it from the right-hand pane to the appropriate slot on the left-hand pane. If you're equipping armor or weapons, your character's image will change to reflect the item you equipped.
If you acquire an item during a Special Event in your adventures and do not have an item currently in that slot, the game will automatically equip the item you found. If there is an item already in that slot (even one that is inferior to the item you found), the game will store the item in your inventory. If you do not have sufficient space in your inventory to hold the item you found, you will be prompted to sell or equip some items to make room.
If you are unsure what an item is or what it does, hover your mouse over the item for additional information.
You have the following equipment slots available (left-to-right and top-to-bottom):
Offhand (including Shields)
Weapons (including Staves and Wands)
2 Ring slots
4 Belt slots for Scrolls and Potions
In addition to the categories above, you will find various combat-useable and just-plain-sellable items:
Miscellaneous Items -- these serve no purpose other than as crafting intermediaries or sold for gold
The three buttons allow you to collapse empty space in your inventory, collapse and sort by gear type, and sell items, respectively.
Mousing over a non-equipped, non-consumable item will show a popup comparison to equipped items of the same type.