what does this mean??>

I haven't been in to test yet, but I believe it will allow the use of any "use" effects on items you equip (ie armor, trinkets, etc...). It will not allow procing effects.

Equipped so nothing from bags correct?

Right, no potions and what not.

Tested this last night. While in shapeshifted forms I could not use potions/food/drink, but I could use my nifty stopwatch in any of the forms. Note that the ability to use an item in forms does not imply it is a useful action. For example: while I could use the stopwatch in travel form, it has no effect on travel form run speed.

If we could use the Ravageer weapon (2H axe I believe), it would be funny if it procced in an animal form =P Too bad no procs.

Tested this last night. While in shapeshifted forms I could not use potions/food/drink, but I could use my nifty stopwatch in any of the forms. Note that the ability to use an item in forms does not imply it is a useful action. For example: while I could use the stopwatch in travel form, it has no effect on travel form run speed.
Maybe they might decide to allow it to be modified with it in the near future?

Don't count on it. They don't want to let us get so fast it downplays the importance of mounts.