Every item in the game has a certain weight. Every character in the game can carry only a certain maximum weight, which depends in the class (the Beggar, for example, can carry 22 weight units from start and increase for every day survived). If the items in your inventory exceed the maximum weight your character can carry, you become "encumbered" (the encumbered icon is then displayed on the right of your screen). While your character is encumbered, you can't move. The be able to move again, you need to drop items from your inventory until you are below your characters weight limit again.
Some classes require some smart inventory management as they can carry only a small amount of weight. It is important to note, that equipped items such as Armor or Weapons count into your maximum weight limit, so that you might have used most of your weight upon carrying heavy armor and weapons. Most characters are thus forced to find a balance between carried armor and inventory size.