I get the idea that an account needs to be inactive for 3 years before its username becomes available. However, my question is does this include ingame activity?

The name I want hasn't been on the forums in 3 years, but went ingame mid July 2012.

What does this mean for me?

You cant use it.
It needs to be Inactive for 3 years
this means on forums and ingame.
So sorry nope.

"Inactive and unused" refers to both ingame and forums. What we don't want is for someone to come back to Toribash, only to find out they've had their name taken from them.

If someone gets a name change to your name, what happens to you?

Wolfe, I think Butler (the other one)'s trying to say that even if the account has been inactive for like 2 years only, instead of 3, you can still take their name if they give you permission.