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How do you use an item in the inventory? opening inventory and pressing i when pointing to a usable item (like the game says) does nothing. Neither does any other button. In short, how do I open the red box with the knife?

You open the red box with a red key. Sorry, escape the room logic... 

OK, but when I collect the knife it says it can be used in the inventory by pressing i, and nothing happens when I do that, so how is an item used in the inventory?

You have to look into the appropiate thing to use it with, or combine it with another to make it useful. I think you used the knife with the pillow