It effects where the item will spawn as well.
You will find 'undead' items in only certain shops, just the same as you will find undead units in only certain places.
This means that there are some items/types of items that are a lot more common than others. For example, the Helm of Chaos (Undead) is a great item, but since it is undead, and there are a disproportionate number of undead shops to the number of items of that type, you will find it in many, many games.
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