To simplify inventory management, characters can carry a number of items equal to their STR stat in addition to armor, primary weapon, and possibly a shield; up to six small items can be readily available dangling from a belt or slung over the shoulders, but everything else goes into the backpack. Small collections of things (10 flasks, 20 arrows, 50 gems, 100 gold pieces) count as a single item. The Game Master can decide that heavy or large objects may count as 2 or 3 slots (he has to consider the size of a normal backpack).
Heavy encumbered characters suffer a DEX and SPD penalty equal to the number of slots they go over their maximum. If their SPD or DEX drops to zero, they cannot even drag all their stuff.