I have been playing for awhile now and have not found anyway to activate the 4th item slot on the board. How do I activate it/ get a 4th item?
It's not automatic, and you'll know when you find a way to do it. As the rulebook pg. 4 indicates, "During the game, you might find cards increasing the limit of your active Items."
We ran into such a situation during our last play session (around 20 dreams in).