I've made several 2D games before, but now want to step it up. I've never made anything high-level like an RPG before, only smaller games. My question is in the design. How do characters interact with one another? I'm thinking I need to make some sort of messaging system but don't know where to start. Also there are different ways to implement inventories and items. Any and all ideas are welcome. I've also been thinking of making a MMO when I have time. I know they take a long time, but if I have a basic rpg going I can build off of it.

I didn't mean just item management systems, but how everything in the game relates to one another.

For example, when the player attacks another player, how does the player know who is attacking him and how much damage is hitting him.

If you are talking a multi-player RPG, start looking at how "MUD"s do it. Many MUDs have open source repositories, so you can see existing production code that solves the problem.

One approach that can work is have it message based: player A's character attacking player B's character results in a message being sent to player B's character on the server (NOTIFY_HIT from: Character A, type: Slashing, damage: 27 chicobo kicks). Then player B's character sends a message to player B's interface (DISPLAY_HIT: "Character A Slashed you for 27 Chocobos of Damage"), which funnels the data through your networking code (mmm, sockets) and gets it displayed on player B's display (which, in many cases, is a simple telnet-format connection).