Playing around with the inventory on the character sheets, I've discovered that it sorts the items alphabetically, by location fist and then by name. However, items with unfilled locations aren't grouped together - instead, they appear where the item name would appear in the alphabetical location sequence.

Further, if a location matches the name of another item in the inventory, the contained item will be listed after the container, and indented slightly. Mostly. This system doesn't seem to nest (no bags in your backpack, please), and if the container itself has a location, the behaviour is erratic. For example, if my "Backpack" item's location is "Back", then all the items with location "Backpack" appear listed after it, indented. But if its location is "Shoulders", then only my "Chalk, piece" is listed after it - the other items with location "Backpack" appear grouped together earlier in the inventory!