Pretty much, yeah he sort of failed to say haha!
But Item Scripting is the "Edit Item Script" link off the Item in question
Change the values of your Variables like this when the Item is used:
%VARIABLE1 := 5
%VARIABLE2 := %VARIABLE2 + 5
The first sets Variable 1 to 5 and the second adds +5 to whatever Variable 2 already is...