The character sheet helps a lot with this. Every five regular items adds up to on Encumbrance Point. One oversized item equals one Encumbrance Point. Armor adds its own amount depending on type. So in your example:
wearing chainmail = +1 point
Shield (oversized item) = +1 point
Sword (regular item) = +1/5 point
So this character would have 2 Encumbrance Points, and be able to carry 4 more regular items before getting their third point. (They are currently Lightly Encumbered.)
Here is a link to a random LotFP character sheet I found to show you an example:
https://31.media.tumblr.com/e835f8447cf 1_1280.jpg
Note that the shield and armor are not counted twice (they are not on the list of items, but are placed elsewhere on the character sheet...)
I believe that torches and rations are technically each an individual item as shown on this sheet, but as you can see, the PC is quickly encumbered when doing this. I play a little less hardcore and allow players to group a set of torches and a week's worth of rations into one slot. Also, the sword isn't listed under items, so in this case it doesn't seem to count as part of this character's encumbrance. (I'm not sure if that's just an exception this Referee is making - I can't find anything excepting handheld weapons in the rulebook.)
I think it's the best encumbrance system I've seen in a published book.