A Soulbound item cannot be traded between players. It can only be used, dropped or sold to NPCs (not all Soulbound items are sellable). Soulbound items are indicated by the "Soulbound" in the item description.
Most Soulbound items are Quest Items or Starter Items, such as the 
Novice Healing Potion and the 
Enchanted Feather. Some rewards are also Soulbound, such as 
Madgar's Belt and 
Angel's Tear. This is to prevent players from skipping the quests. Some Soulbound Items can be looted, such as 
Canine Ring. Some items have two versions, one Soulbound and one Un-Soulbound, such as 
Joma's Pendant and 
Mushroom Bag.
Most Soulbound items have a sell price of 0 
Gold to NPCs, but some items like Madgar's Belt are worth more.
Soulbound items CANNOT be stored in Vault
Note: It is rumored that Soulbound items are easier to enchant.