If you've read this far, you know there's a lot of different items in the game. This site exists largely to chronicle the knowledge of equipment in games of this genre.
There are two ways two classify items - function and quality.
Function is the obvious. What's this item for?
Equipment is something you wear. A sword. A piece of armor. Duh, no brainer here. Equipment says exactly what inventory slot it is used in, and any aspect of the text written in red means that you can't use it for that reason. (Mail would be in red for a druid, level 35 would in red to a level 30 character.) Equipment is the only type of item that quality truly applies to, although tradeskill items sometimes have one.
Consumables are items you use. Food and drink. Potions. Scrolls of stamina. You right-click them in your bag, they do something, and they disappear. (Arguably, ammunition could be consumable, but that isn't how you use it.)
Quest items are objects you acquire, usually but not necessarily from corpses, that specifically say on them "quest item", and are for the explicit purpose of completing a quest. You will usually not see a quest item unless you actually have the quest. Some items for quests are not marked as "quest item"s, which means they have an additional purpose. True quest items do nothing else, and cannot be sold to vendor.
Junk items, sometimes called vendor trash, is anything that does not fall into one of the preceding categories, and when you mouse over it, its name appears in GRAY LETTERS. Anything that meets this criteria is only meant to be sold for money when you get back to town.
Tradeskill items are anything that doesn't have an obvious purpose, but has a name in usually white letters, or sometimes one of the higher-quality colors. It may not be obvious what exactly, but it will be used in *some* tradeskill recipe. Obviously herbs, ore, and leather fall into this category. Tradeskill items often make a decent sum of money in the auction house, but if you can't figure out what it's good for or don't feel like wasting the time, it might be worthwhile just to sell the item anyway. (Chances are there aren't too many people looking for Zesty Clam Meat anyway.)
And there are a few miscellaneous items that don't fall into any category. Bags have a fairly obvious purpose. If you have a mount or a non-combat pet, you will possess an item that calls or summons it. (Nightsaber reins, bird cage, cat carrier, etc.) Skinning knives, fishing poles, and mining picks aren't really tradeskill items, nor do they do anything directly.
Additionally, most things you wear have an item quality, indicated by the color of their name. Most items you pick up initially will be gray, indicating the poorest of quality. White is one step up from this. Generally gray and white items have no properties to them other than just "armor 13" or "damage 5-8." Low-level quest rewards and very high-level whites are sometimes an exception. Green items and anything above that, for all intents and purposes, are magic items. They possess some additional benefit beyond protection or damage, usually a bonus to one of your attributes. Sometimes the bonus will be an effect, like an effect on a weapon that causes extra damage. Unlike white or gray items, these can be disenchanted. Blue items are much rarer than green. Usually greens only have one or two bonuses on them. Blue items often have three. All other things being equal, though, blue items have much lower required level than green for the effect. Blue items typically come as treasure from killing a boss in an instanced dungeon. Green items are sometimes randomly generated, a la the Diablo suffix system, but blue items are always the same. There are even higher qualities of item. Purple items are much more powerful than blue, and are extremely rare outside of loot from raid bosses. Beyond that is the almost non-existent orange category. Allegedly, some day, there may be red after this.
The item qualities do technically have names. Nobody uses them, and just refers to the color, which often makes item discussions sound like racial bigotry. If you want the "proper" terminology, gray is poor quality, white is common, green is uncommon, blue is rare, purple is epic, orange is legendary and presumably red will be artifact items. Of these, epic and legendary are the only names that get used consistently.
There is one other very important attribute to equipment - binding. An item that is soulbound belongs to you. Forever.
You can sell it to a merchant, but you cannot trade it to another player. Quest rewards are nearly always soulbound so you are forced to do the quest yourself. Most green items you find along the way have the status "bind on equip." This means that you can trade the item, but as soon as you equip it, it becomes soulbound to you. Most blue items are "bind on pickup," meaning the person that loots it will keep it forever. This is usually an aspect of boss loot, and it is important the group discusses who gets the item before you blindly pick it up. DO NOT JUST TAKE BIND ON PICK-UP ITEMS UNDER ANY CIRCUMSTANCES WHATSOEVER. Don't make me enlarge and bold that. This is the reason why so many different loot options exist, but it is still best to discuss with your group what is to become of an item. Anyone who takes an item without consulting the group is frequently referred to as a "ninja", and often a bad reputation can follow from that.
There are various aspects to the looting system, but typically players leave loot on Round Robin so the corpses cycle, and the game makes an exception for items above a certain "threshold" — by default this is green items, but players often switch it to blue. Most people follow a policy of NBG (need before greed) that mandates that if you are a warlock and you could loot a really nice bow, it should instead go to the hunter in the party. For this purpose, "need" for cash and disenchanting are on an even plane, and squarely below someone wanting an item because they would use it themselves (on that character.) If an item above the threshold appears, all members of the party will get a pop-up window with the item, a time bar, and three options — need, greed, and pass. Need is the dice option, meaning you want to roll against the other people who claim they need it. The game will pick random numbers for each person who chose need, and award the item to the highest "roller". Greed is the coin, and works just like the need option, in case nobody picks need. The circle with the slash means you simply wish to pass on the item altogether.
Sometimes players use a different system, so make sure you're clear on what is happening ahead of time. Because the need-before-greed window has a timer on it, sometimes the group wants everyone to pass so they can discuss the drops. If you need to then roll for an item, type /roll or /random. Highest roll (from 0 to 100) wins.
Money in the game consists of gold, silver, and copper pieces. 1 gold is worth 100 silver, 1 silver is worth 100 copper. There are a few different ways to get money, and a few ways to spend them. Here are just a few.
Getting money:
Killing things. Some creatures have coin on them, while others have random junk to sell. This will cover most of your *basic* expenses, and probably nothing more.
Completing quests. This is fairly negligible, although sometimes you can't make use of the item reward and can sell it for decent money.
Selling items. It might sound backwards, since this doesn't actually create money and just shuffles it, but the best place to get money is from other players by using the auction house. (Read below.)
Tradeskilling. This actually falls into the preceding category, but deserves its own mention. I will be perfectly honest with you: you will probably lose money on production skills unless you are a very good businessman. However, the demand for tradeskill supplies is always high, and this includes leather, herbs, ore and gems.
Spending money:
Class skills. You'll need your abilities to proceed. A level 20 isn't *that* much better than a level 18 except for the new abilities acquired at 20. Extra HP and higher weapon caps are helpful, but so are your mad skeelz. For some classes, you might find that you have a lot of abilities you don't see reason to spend money. I *personally* advise you do, but many players don't. It is my opinion that your skills, even if only used on rainy days, are always important to your survival, and are never really replaced. (Higher ranks usually require the lower ones.)
Equipment. At lower levels, the vendor is handy, but past level 10, you'll probably find most of your equipment purchases in the auction house. I will extend "equipment" in this sense to anything you might make use of while adventuring. In that sense, larger bags and healing potions are also things you might purchase.
Tradeskills. At least for the first 150 points of tradeskilling, you'll need to purchase recipes, patterns, etc. to actually make the items. To actually make an item, you will usually need additional stuff besides just the leather, cloth or herbs, and this stuff usually has to be bought. Examples include alchemy vials, coarse thread, and iron buckles. (Iron Buckles are an example of an item you will need to buy from other players - blacksmiths make them, and they are used in some tailoring and leatherworking recipes.)
Repairs. Your items lose durability, especially when you die, and you will need to pay to keep them in good working order.
Reagents. Some caster spells now have a reagent cost. While most players sincerely hope Blizzard reconsiders this, higher ranks of most buffs and a few other miscellaneous spells take components to cost. (By the way, it's reAgent, not regent. A regent is someone who rules in the place of a king.)
MOUNTS. At level 40, you are *able* to purchase a mount that will enhance your travel speed. You can't do anything on a mount besides ride, but most players love their mounts. Please be aware that while this is the first level you could own a mount, it is by no means expected that you WILL be able to afford the 100G to purchase a mount. When you reach level 60, you will almost assuredly not have the 1000G to get the faster mounts. (It should be noted that warlocks and paladins get class-specific mounts, and will not need to buy the level 40 one.)
Bank slots. Your bank holds only so much stuff. In addition to the actual slots you have, you can also purchase bag slots for extra space. At low levels, 10s for a slot that you can put a 5s bag in for 6 extra slots might sound decent, but later on it gets rather expensive. I believe I heard the prices were changed recently, so I won't quote any numbers, but it is such that during beta most players didn't have more than the fourth bag slot.
Resetting talents. It costs 1 gold for the first time you reset your talent points, 5 gold the second time, and eventually goes up to 50 gold. You can continue to "respec" for 50 gold after that. So if you don't like your talent choices, you don't have to restart a new character completely, but it is preferable to find what you want early on. Plan well.
Miscellaneous expenses. Some stuff that isn't major and doesn't fit any of the above. Training a new weapon skill. Riding a gryphon. These costs won't usually make or break the bank past level 10. There are also random "flavor" items on some vendors that serve no purpose other than to make the game more interesting, like non-combat pets, flower bouquets, and fancy dresses. Those things CAN be expensive.
THE AUCTION HOUSE.
The AH, that you've surely heard so much about, is a giant flea market where you can buy and sell items you need (or don't need.) Anything from equippable items to potions to tradeskill supplies to rare non-combat pets and a few select quest items can be found in the auction house. Items are done on the basis of BIDS. When you wish to put an item up for sale, you talk to an auctioneer and pick a time length you want the auction to run for. You then set a minimum bid and optionally a buyout price. There is a small overhead charged to you based on the item's vendor value and the length of the auction. (Choices are 2, 8, or 24 hours.) If you are on the market for something, or just want to browse, the auction house interface search feature is fairly straight forward. If you want to specify an item by name, type it in the name blank. If you are looking for a general kind of item, use the tabs below to pick specifically that you want, say, a piece of armor, type leather, for the arm slot. You can filter things down by adding a level range or by only seeing items your character could presently use. Make sure you don't put a level range when looking for tradeskill supplies or other things that have no level requirements. =p
As you peruse the items that meet your criteria, you can either refine your search or look at the bid and buyout prices of the items and consider putting money down on one. Bids will take money out of your gold supply, and will be held until the auction finishes or you are outbid. If you win the auction, the item will be in your mailbox. It you are outbid, the money from your bid will be instead.
Buyout is the means to escape the wait of the auction altogether, and is preferable for almost anything that is not a worn piece of equipment. Buyout prices are always higher than bid prices, but in the act of putting your money down, the auction ends and you instantly have the item placed in your mailbox.
Auction houses for each faction are located in Ironforge and Orgrimmar, near the entrances of the two cities. There are also two auction houses in the goblin cities of Everlook, Booty Bay, and Gadgetzan which both factions can make use of - and this is the only way an item can reach the other faction - but they aren't widely used due to being less accessible and having a higher charge to list items.
A brief bit of strategy for the auction house, folks: when you are listing an item, you should nearly always use a semi-realistic buyout price. You don't actually need to put a buyout, but unless people are bidding on some high-ticket rare sword or whatever, they will often sooner spend 50 silver for their healing potion now so they can use it on their upcoming adventure, rather than put 5 silver down for a potion they will get in a "long" or "very long" time. OTOH, saying you should always have a buyout price doesn't mean you should put down stupid-high buyouts like 30 gold for one piece of linen cloth.
Trading items is done by either picking a player and selecting trade, or highlighting the item and "dropping" it on the player. A simple trade interface appears that lets you place several items in the trade window, as well as any sum of money you have, and consent to the trade. If both parties agree, without the trade changing in-between, the game swaps them.
You cannot drop items on the ground. You also cannot trade to opposite faction members. The only way to transfer items between factions is through the neutral auction house, but on a PvP server, you can't play both factions on the same server anyway.
If you want to transfer an item to another character, mail it. Mailboxes are outside the inn, or in some cases the bank, in every town through Azeroth. (There won't be one at your newbie village, but the main town in the starting zone will have one.) Mailboxes have a few different looks to them, but they should be easy to spot. When you click on a mailbox, you are given two options - look at your mail, or send your own mail. If you choose to send a piece of mail, you must choose your recipient, give the letter a subject, and optionally you can either type a message or attach money or an item to the letter.
You will know if you have mail by a small icon around your mini-map. As you receive a piece of mail, it will appear in your in-box, and remain there for 30 days. Mail with items or money attached will show that in their icon. Basic messages will be letters. Click on a piece of mail and (if there is one) you can click on the item at the bottom to detach it and take it with you. Items can be sent COD. If someone sends you an item this way, you will have money taken from you and sent to that person if you accept the delivery. Be careful of mail scams.
If you don't want a piece of mail any longer, or simply want to return it to sender, you can either select "return" or "delete". Mail from the auction house will delete itself once you take the money/item attached. Unviewed mail stays in your in-box for 30 days, and then return to sender.