Though your Character Statistics define your capabilities, your appearance and efficiency is largely defined by the Items and Equipment you carry. Items are used as crafting materials, merchandise and Consumables. Equipment is worn on the Player Character and can persistently influence certain aspects of it.
Your acquired Items and Equipment are stored in the Inventory (I). It is made up of individual Slots, with each Slot having room for one Item or a stack of Items. A Stack means that several Items of the same kind inhabit one Slot, with a counter designating the amount of Items stacked in one Slot.
Inventories have 200 available Slots. If the Inventory runs out of space (or you want to get rid of certain Items), you can break Items down into money. This is done by clicking the Item Icon with the Right Mouse Button and clicking Break Down in the Context Menu. You will then be shown the amount of money the Item will gain you and be asked to confirm your action. The amount of money you gain by breaking down Items is only a small percentage of the actual price you would gain by selling it at a Shop.
Quest Items Edit
Quest Items are kept separate within the Inventory. These Items are crucial to fulfilling Objectives and completing Quests, hence their separate status. To view them click the Quest Items Tab. Quest Items cannot be broken down, nor can they be removed from the Inventory manually. Completing Quests and/or fulfilling Objectives will remove Quest Items from the Inventory when applicable.
Source: Official Site - TCOS Manual