Bag Space is one of two limits in the game other than Weight. To check how much maximum bag space you have, check the number on the top-right corner of your inventory.
Bag Space is a mechanic that discourages you from having too many different items in your inventory at once. For instance, you cannot have all of your equipment and items that you've obtained throughout the game to be all clustered in your inventory. Once you reach the limit, you cannot pick up any more items. A reasonable idea would be to keep most of the equipment that you won't be using in your storage, or sell it (or auction if it's still tradeable) if you no longer need it.
Equipping a bag can increase the number of different items you can carry. A good bag will increase both your weight and bag space by a large amount at the same time (a bag that can only carry more weight or more bag space should be avoided). You can also attach pockets to increase how much the bag the carry in both weight and bag space.
Wearing a piece of equipment regardless of having it on or not will continue to increase your current bag space (current number of items in your bag). This is also true for costumes.
Situations with items while your bag is full
In most cases, if you tried picking up an item while your inventory is full, you are not allowed to pick it up until you have freed up space in your bag. In each of these situations, the game will have a different approach on how to deal with that item.
- In groups, any non-loot pool item that you attempt to pick up while your inventory is full will be given to your group member instead. A loot pool item that you've won while your inventory is full.
- Be warned, there are instances where picking up a quest item while your inventory is full will cause the item to disappear!
- If you opened up a bag or chest that gives more rewards inside of it while your bag is full, it will not allow you to take the items inside.
- Any non-bound reward such as potions will be dropped when you complete a quest when your bag is full.