Some items, such as potions, can be consumed to get a reward or apply temporary effect (aura). For example, the Small Healing Potion can be drunk to restore some health, the Potion of the Mountain Nymph can be consumed to apply Regeneration aura, and so on.
To consume the item you can click the 'Use' button in your inventory list. The item effects will be applied and the item will be taken from your inventory.
Please note that effects from consumed items may not stack. For example, when you drink multiple healing potions their total effect cannot exceed your maximum health. In most cases the game will warn you about such a waste of resources.