Items and Abilities work very similar. Both can be selected and used either from the pull-down and buttons on the Actions frame, or from the character sheets. Both have limitations to the number of uses or the frequency of uses.
When an item or an ability is used, they have a recharge time. This is the amount of in-game time that must pass before it may be used again. In some cases, when an item or ability runs out of uses, it will automatically be removed from the character's list. Others have infinite number of uses.
One difference between items and abilities are how they are acquired. Items can be found in an event where they are sold by a store, dropped after a combat, or some other means of acquisition in an event. Abilities can also be acquired during the course of an event. But, new abilites can also be acquired at the time a character levels up. When your character increases their level, proceed to the character sheets to select a new ability.
(Updated Jan. 19, 2010)