Key items are unique objects essential for progressing the main story or completing specific side quests. These items cannot be sold or discarded and are stored in a separate section of your inventory. Examples include the Fyggs you collect, the Starry Express parts, or specific quest-related artifacts. Always pay attention to dialogue when receiving a key item, as it often provides clues on where to use it or what its purpose is.
Quest items are similar but are usually specific to a single side quest and disappear from your inventory once the quest is completed. They might be something you need to deliver to an NPC, an object to show to someone, or a component for a temporary alchemy recipe. If you're stuck on a quest, double-check your key items and quest items to see if you've overlooked something important. The game's quest log (accessible via the 'Misc.' menu) will often provide hints about what to do with these items.