Arcane spell failure

Arcane Spell Failure is the chance that an arcane spell — that is, one from the Bard or Sorcerer / Wizard spell list — will fail to be cast due to interference from the caster's armor or shield. Such a failure expends the spell's spell points and cooldown as if it had been cast. Bard spells are not subject to Arcane Spell Failure from light armor. The ASF chances from your armor and your shield add together.

Casting a spell from a wand is not subject to ASF, but reading a scroll is. Furthermore, any scroll with a spell on the Wizard's list will be susceptible to "Arcane" Spell Failure even if the reader is a divine caster. (Thus, Clerics cannot reliably use Protection from Energy scrolls in their heavy armor).

Spells that don't need a somatic component are not subject to ASF, either when cast or read from scrolls.

Reducing Failure Chances
Both Mithral & Twilight armor and shields reduce the Arcane Spell Failure chance by 10%. These effects stack and in some cases completely negate the Arcane Spell Failure of a given item. Darkleaf armors have a slightly lower Arcane Spell Failure chances (5% less), but this material is used for rather heavy armors (Breastplate and Bandedmail) and cannot completely negate ASF alone.

Arcane Spell Failure is of particular importance to Warforged arcane casters since their natural body plating imposes at least a 5% ASF penalty by default. Fortunately, there are ways to mitigate it. Composite and Mithral body plating are considered light armors and thus don't impact Bards. At level 2, a Warforged character can get the Warforged Inscribed Armor I enhancement to reduce ASF from armors by 5%, thus removing ASF when having Composite Plating. At level 6 they can select Warforged Inscribed Armor II to reduce it by a total of 10% and at level 10 can get Warforged Inscribed Armor III to reduce it by a total of 15%.

Elves may also reduce Arcane Spell Failure with their Elven Arcane Fluidity line of Enhancements. At level 2, they may reduce ASF by 5% on Light armor. At level 6, by 5% on Light or Medium armor (this is not cumulative). Finally, at level 14, they can get Elven Arcane Fluidity IV: for a 20% ASF reduction on light armor 15% ASF reduction on medium armor and a 10% ASF reduction on heavy armor or shields. It means the best reduction an Elf can have is 20%.