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Equipped
An item is Equipped when it is being stored in the correct Item Slot, corresponding to its Subtype.
An Equipment, such as Weapon, Tool or Fascinator, can be used and grants its effects while stored in a Hand Slot, a Gadget provides its benefits while being stored in a Pack Slot and an Apparel grants its benefits while stored in the Body Slot. For more info see Subtype
Wuntch's Waffling
You may be thinking, hey, why do I get the effect of an Item if its just hanging out in a pouch or dangling from a strap? The different slots help represent easily accessible places on your character's body, think along the lines of a walkie talkie, easily able to press the button to talk or change channels while still attached to a belt, or a headlamp one flick away from being on or off. These are just two examples off the top of my head, your character may have any number of ways to easily access their gear but be reasonable and store your items as Appropriate.