#3 - July 18, 2010, 9:15 p.m.
A soulbound item is essentially an item that cannot be traded to other characters, as it has become linked to a particular character, Unholyzach. Once soulbound, a character can use the item as he or she wishes, including equipping, storing in a bag/bank slot, selling to a vendor, and disenchanting or destroying it. The item simply cannot be transferred to any other player by any means. Soulbound items are typically weapons and armor of uncommon (green) quality and above.
An item becomes soulbound by one of two means. Either the item became soulbound the instant it was acquired by the player, whether created by that player or taken from a slain boss, or it became soulbound when the player actually equipped the item after acquiring it. These two methods are reflected in the item's tooltip, which indicates whether the item either "binds when picked up" or "binds when equipped."
Back with the release of 3.0.2, though, certain items now bind to an account, instead of an individual character. These account bound items
can be transferred between characters, as long as they are on the same realm, and on the same account. If you are interested in using your main to gear up your paladin, you may want to look into getting some BoA (bind on account) or heirloom items. :0)