Costume

Costumes are special equipment slots in your Equipment window that allow you to wear other pieces of equipment (e.g. a fancy hat with poor stats) over your existing equipment (e.g. powerful hat with good stats). You'll be able to retain the fancy hat's look, while getting the stats of the powerful hat.

You can unlock all of the Costume slots at once by purchasing a Prismatic Cloth from Andy's shop for 100 gold (90 with Revered status, or 100% reputation with Ashaya Village). After using the Prismatic Cloth in your inventory, you can Ctrl+click the equipment > Wear as Costume, where it'll end up in your Costume slot at the bottom section of your Equipment window. To unequip the costume, simply double-click on that piece of equipment in your Costume slot.

The more equipment you have, the less bag space there is for you to collect other important materials or quest items. It is important to balance out the equipment you want to dedicate to making a costume set for yourself, and equipment which is used to strengthen you for later battles.