Sockets are found on weapons, armor, jewelry, and more. If you find an item that is Socketed, then you can install Gems, which will benefit the object or the wearer of the object. To install a gem, all you need to do is select the gem and place it on one section of the Socketed item.
Sockets can be randomly added or removed by an Enchanter for a small cost to you.
An item can have sockets up to the number of vertical spaces that it takes up in your inventory. (Ex: A Magic Staff 4 spaces high will allow up to 4 Sockets, while a Ring or Necklace will only have 1 Socket.)
Sockets also increase the sale value of the item to a Trader.