Re: Still don't understand which cards should go where
That's a broad question. Let me try to break it down for you and you can ask followups if this isn't clear enough. I'm going to go with original Munchkin here and no expansions to keep things simple.
* Cards that can be in your hand: Any of them. With VERY few exceptions (and they say "Play immediately" or something similar), you can keep any card you find in your hand.
* Cards in play: You can play one Class and one Race (or two of each with Super Munchkin or Half-Breed). You can play one Big item and as many small Items as you want. Items you aren't currently using should be turned sideways (the "backpack" you mention, which is a term that should be avoided since we have actual cards called "Backpack"). You may equip (gain the bonus from) one Armor, one Headgear, one Footgear, and two Hands.
One-shots ("Usable once only") may be played from your hand or from the cards you have in play unless a specific card says otherwise.
Did this help? Do you have further specific questions we could answer?
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