Your Inventory contains all of the items you pick up during your travels throughout the world of RPG MO. Collectable items (Loot Drops) from Mobs or resources are automatically put into your Inventory, if there is room. Mining, Woodcutting or Fishing will continue to fill your Inventory until full unless you move your character away from the resource.
It is also the interface between the Chest, Anvil 
, Furnace 
, Campfire 
, Kettle 
and Water Well. 
Having the in-game Wiki Mod enabled allows you to right-click the Furnace, Campfire, Kettle, Water Well, Fishing Spots, Mining locations, Trees, and Mob's to check 'Drops' to see your actual success percentage and experience gains. Right-click NPC 'Drops' to see a list of items they sell with quantities. Info is displayed in the chat window.
Equipment[]
All Tools, Armor and Weapons can be equipped by left clicking on them in your Inventory. A yellow border around the item indicates that it is equipped. A small, green dot appears in the upper left corner of the two most valuable items in your Inventory. These items will be saved upon Death. If you have a Potion of Preservation equipped, five additional items will have the green dot and will be saved upon Death. Enabling the 'Gear Screen Mod' allows you to open a mini-inventory window showing your equipped items, your character icon and Bonus stats. This is useful to ensure that all of the equipment you want is being worn by your character.
With a Magic Pouch equipped, selecting a magic spell will put that spell into the pouch, if there is room for it. Bigger pouches can carry more spells and may have other bonuses.
Using the 'Keybinding' Mod, you can move items between your Chest, Inventory and Pet Inventory with a single keystroke. With the proper Mods enabled, you can 'ctrl' click an inventory item and a green box will momentarily appear around the item which will 'lock' those items in your Inventory when you move them using the Keybinding Mod. 'Ctrl' click the item again and a red box will momentarily appear around the item turning off the item lock.
Consumables[]
Equipping (left clicking on) cooked food, Potions or Teleport Scrolls causes them to be consumed whether you need them or not. Right clicking allows you to "Use" (equip/eat), "Inspect" (see info in chat window) or "Destroy" an item without using it (I'm collecting ore and don't want the Monster drops filling my inventory slots). Enabling the 'Right-Click Menu Extensions' Mod, provides more information options.
Creation[]
Alchemy is performed in your Inventory. Select the ingredients you want to use to attempt to create a potion.
The Mortar and Pestle 
are used in the Inventory to make powders (Dust) for Alchemy potions.
Chipped Gem processing is also performed in your Inventory. Select the Chisel 
and the chipped gem to attempt to make a cut Gem. Gems are used to make Jewelry.
Rings and Necklaces are made by Forging. Equip the appropriate mold and ingredients then click on the Furnace.You can also equip plain jewelry and cut gems then click the furnace to attempt to forge jewelry with gems like a Silver Sapphire Ring.
Eating Cooked fish is a great way to refill your Health bar after battles. Select the raw fish then click the Campfire to attempt to cook it. Mmmm, Mmmm good. Raw or cooked fish is also a good source of coins by selling them to the various Fishing Masters.
Selecting different ingredients and then selecting the Kettle can result in higher health regenerating meals than just Campfire Cooking. See Cooking for recipe combinations.
Fill empty vials 
at the Well by equipping the vial and then clicking the Well with 100% success.
Extra Space[]
If you have a Pet, it has Inventory carrying capacity depending on the pet with 4, 8, 12 or 16 extra slots. Put your Pet into your Inventory and Equip it. A Pet Icon (yellow dragon) will appear to the right of your Skills Icon. Hover over it and select "Open pet menu". This opens a new inventory window. Single click an item in either side to move it to the other side. SeeMods for more Pet inventory options.
The Chest[]
Clicking on the Chest in a town or on your Island, opens the Chest Inventory. Use the Chest commands located at the bottom of the Chest window to move items between your Chest and your Inventory. Enabling the 'Chest interface' Mod will give you more movement and sorting options.