The object is no longer fully functional, and while you can still use it for its intended purpose its condition hampers your attempts to do so.

Wielding a Broken weapon inflicts a -2 Penalty to your attack and damage rolls with it, as well as to any saving throws you make that you use it to Parry an attack.

A Broken Shield only grants +3 DR per Tier when you use it to Shield Block.

Wearing a Broken suit of armor increases its Speed Penalty by -5 feet, and reduces its Max DEX by -2, which may reduce your Defense and Reflex saving throws.