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Gems are precious stones which can be placed in any socket of an item to add modifiers to that item. The modifier(s) added vary depending on whether a gem is placed in a socket in a weapon, helm and body armor, or shield. When gems are placed in a low, normal or superior quality item, the item can change color depending on the color of the first gem placed in a socket (otherwise, gems do not affect an item's color). Once placed in a socket, a gem cannot be removed without destroying it (and it can only be removed in an Expansion game).
Due to their low required level, gems are often placed in sockets early in the game, where the modifiers added can be a significant improvement on what is otherwise available at that level. Later in the game gems are less commonly placed in sockets unless their modifiers are comparable to or better than those of runes or jewels.
Gems can also be used to make crafted items and make or manipulate other items using the Horadric Cube (including upgrading lower quality gems to higher quality gems). They can normally only be dropped by monsters, with the exception of perfect gems. However, a random perfect gem is a reward for destroying Mephisto's Soulstone on the Hellforge, and lower quality gems can be upgraded to perfect using the Horadric Cube or any Gem Shrine found in the wilderness (activating the shrine will upgrade a lower quality gem found in your inventory, or drop a random chipped gem if there is none).
Monsters spawned in games with more players are normally less likely to have no drop and thus more likely to drop items (including gems), but Better Chance of Getting Magic Items has no effect on the quantity or quality of gems dropped. Each gem fills one inventory space and they cannot be stacked.
Gems cannot be bought from vendors in town unless another player sells them and at least one player remains in town afterwards to prevent the inventory being reset. If gems are sold to a vendor, they are displayed under the Misc tab of the inventory if there is sufficient space for them. Gold from selling gems to vendors in Hell is as follows: