Soulbound is the system that RotMG uses for certain rare drops, usually from the most powerful mobs in the game. In RotMG, it simply means that only the person it dropped for can loot it. That means, if you saw it on the ground, it was yours - no one else could pick it up. Only some of the best items in the game are protected that way, so it's probably pretty valuable.
I don't play enough RotMG to know what that exact item does, sorry. After being looted, soulbound doesn't actually do anything else that I know of - you can trade it or drop it, or lose it to death like any other item. It just keeps the soulbound "tag" to remind you that it was soulbound on drop.