party itemshare should be disabled.

Anyway, basically what it does is when you pick up an item it throws it in the inventory of one of the partymembers within 100 blocks or something. For example, you have 2 partymembers near you and you're farming pumpkins, if one of you gathered pumpkins then over time all three of your inventories will fill up with pumpkins, basically, when there are 3 people each person gets 1 pumpkin per 3 pumpkins picked up.

 

andrewkm Tested 3 times standing 25 blocks away from a friend. Nothing happened after 10 seconds.

Tool was dropped, remained dropped until picked back up by me.