In a roleplaying game, inventory refers to the collection of items your character is currently carrying.
In World of Warcraft
In World of Warcraft, this usually refers to what you are carrying in your bags. Items you have equipped are not usually considered to be "in your inventory". Neither are items that you have stored in the bank.
Patch changes
Patch 6.0.2 (14-October-2014): Items in the inventory now have a colored border around them to indicate their quality from Poor (grey) to Legendary (orange).
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