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Quest Item
A quest item is something that is given to you by an NPC during a Quest, and is used only for completing a quest.
These quest items must reside in your inventory (i.e. they cannot be moved to the bank, put in a container, traded, or placed as decoration). Some quest items can be equipped (equipped items are still considered to be in your inventory even though they are shown on your Character Sheet rather than in the inventory window).
You can permanently delete most quest items from your inventory by right-clicking on the item, and then selecting "Destroy Selected Item(s)..." Deleting a quest item is irreversible and you will not be able to retrieve the deleted item.
In your inventory window, the title text of quest items appears in Yellow.
Quest items can be shown or hidden by clicking on the cog in the upper right of the inventory window, then selecting the desired option. Hiding Quest items can reduce the clutter of your inventory window, but remember to show them when you are trying to find a quest item.
Note that The Shroud of the Avatar is a quest item!