Open up the script. It was called something like CoT_YarrickInv, I include the source files which you're free to copy or read for how it was done. He's a talking activator when he's dropped/placed on the ground, but a misc object when picked up again and put in your inventory.
Note that you'll need to pick a mesh that has collision attached if you're trying to do something similar like a talking skull. From memory, what the script does is when he's dropped from the inventory, it removes the misc object and places a copy of him as a talking activator instead on the ground. When he's picked up, that instance/copy is then disabled/deleted so it appears seamless.
Long story short, it's more straightforward that it may look. If you're just getting into modding though, this is a bit complex.