[Clipper]

You've got most of it right, with a few errors, so hopefully this will help fully explain it...

There are several types of cards you can have in play on the table, including Races, Classes, the Hireling and Items. You are carrying all the Items (and only the Items) you have in front of you. Some of those Items will be in use and others will not, but they are considered carried regardless. Those Items that you are choosing not to use (or can't use) are turned sideways.

With Munchkin Legends (as you indicated that's the set you have in another thread), you can carry as many Small Items as you want, but you can only carry one Big Item at a time (unless you are a Dwarf). There are also restrictions on some types of Items regarding how many you can have in use, such as one Headgear, one Footgear, one Armor and two Hands worth of Items that use Hands, but you can carry as many of these Items as you like (respecting the restriction on Big ones), provided the additional ones are turned sideways.

Cards that are in play do not count towards your hand limit.