Key Items are used specifically for quests. Many of them can be collected regardless of whether the quest has been received or not. They appear as small glowing red balls, similar to Collectables aside from the colour. If a quest to find a Key Item has been accepted, its location will be marked on the mini-map by a red exclamation mark. Key Items cannot be sold, and have their own section in the inventory.
Xenoblade Chronicles 2
Key Items are usually required or rewarded during quests.