Throg was collecting some trinkets for a quest [forging a new blade]in the Barrow downs but he had forgotten to empty his bags and they were full of vendor trash. When Throg picked up the trinkets he got a message he had never seen before:
If you can't read the message it says "Your inventory is overfilled. Items are being held in an overflow area until you remove one or more items from your backpack". Returning to Bree and selling some stuff Throg found the trinkets magically appeared in his backpack. How cool is that? Even with full bags you can pick up quest items. Throg later tried to pick up some non quest trophies and it would not allow him to do so until he made space in one of his bags. It appears the overflow storage only works with quest items. Still it is a very user friendly feature - you can always pick up quest items no matter how full your bags are!