What does soulbound mean?

Soulbound items and soulbound loot are different in RotMG. In this case you have a soulbound item. Soulbound items will be lost on death. Soulbound items cannot be given to other players by dropping it or trading it.

Soulbound loot just means purple/cyan/white bags, which cannot be accessed by other players, unlike brown/pink bags. If you drop a soulbound item on the ground, it will appear in a purple bag and only you will be able to see it.

Soulbound damage is also term used to describe the amount of damage you need to deal to a boss in order to have a chance to get high tier items/potions.

Soulbound is the system that RotMG uses for certain rare drops, usually from the most powerful mobs in the game. In RotMG, it simply means that only the person it dropped for can loot it. That means, if you saw it on the ground, it was yours - no one else could pick it up. Only some of the best items in the game are protected that way, so it's probably pretty valuable.

I don't play enough RotMG to know what that exact item does, sorry. After being looted, soulbound doesn't actually do anything else that I know of - you can trade it or drop it, or lose it to death like any other item. It just keeps the soulbound "tag" to remind you that it was soulbound on drop.