Your backpack is an item storage area that you carry with you at all times. The Hot Key 'I' (for Inventory) opens your backpack for viewing.
With your backpack (inventory) closed, any time you click on an item laying on the ground it will be transferred into your backpack automatically, provided a space of sufficient size is available. Items will not be moved to make space. It is encumbant upon you to ensure your backpack is organized. There is a button available to re-sort the contents of your backpack, when you have your inventory open. The button alternates between "across first", or "down first", placing the smallest items first, and working toward larger items. Rings, amulets, potions and runes all occupy a single cell of your backpack – the sort function will keep these separate, placing runes first, then amulets, rings and finally potions. Runes are not separated by character, nor are potions by type, so this is usually of minimal use unless you are attempting to consolidate "holes" in your inventory to accommodate a large item.