Items from your inventory are used only if they are selected (blue gem above), and if they have any power on the target encounter (amount of red gems above). Selection defaults back to hand if you attempt scouting with an unusable item. Some encounters will give you a different reward if you finish scouting with a specific item (animals give you coins for food and trees give you fruit when using sticks or rocks).
I'd like to add a tutorial that explains everything in a playable level, I just need to figure out some code stuff for getting custom maps working right.