You sell items to merchants. A merchant is basically anyone who has the option when you talk to them at the bottom left of the screen to barter. For the most part merchants do business in their stores. There are a couple of exceptions like Shady Sam or thieves guild fences.
Merchants have varying amounts of gold to barter with you as well as mercantile skill. In general the more gold they have to barter with you the higher their mercantile skill is, which means you won't get as good deals from them. So if you're trying to sell a cheap item don't go to the merchant with the most money (who will probably also have the highest mercantile skill). Only use those high-end merchants when selling expensive items.
Merchants can only buy and sell certain types of items. Like some merchants only buy weapons and armor, others will only buy alchemy stuff, others will only buy books, etc. There are a few merchants with general trader store who will buy anything. But in general their mercantile skill is higher than others at their level of gold so only use them if you need to. Once you get to level 50 in mercantile you can sell any item to any merchant.
Two of the best merchants that I always use are Ogier Georick at the Main Ingredient, which is in the Market District in the Imperial City, and Varel Morvayn at Morvayn's Peacemakers, which is in Anvil. Sell all your alchemy ingredients and potions to Ogier. Sell all your weapons and armor to Varel. Once you reach level 50 in mercantile then just sell everything to Varel.
The perk of reaching level 75 in mercantile is the ability to invest 500 gold in a merchant, which brings up the amount of gold they have to barter with by 500. Through some sort of oversight on Bethesda's part, you are actually able to do this with a simple fortify mercantile spell. Fortify your mercantile to 75 and you are given the option to invest in stores.
Once you get into the Arcane University and are able to make custom spells, a good spell to use everytime before you try to barter with a merchant is:
Charm 100 pts for 2 seconds on touch Fortify mercantile X pts for 2 seconds on self
Replace the X with how many ever points it takes to get you to 100. Make sure you take off all your armor before you cast this spell so that your spell effectiveness is 100% so that the spell actually gets you to 100. This spell will allow you to get the best deal possible with merchants.
I should probably also say that merchants will always rip you off. They will always sell items for more than base value and buy items off of you for less than base value. That is until you reach master in mercantile. At that point you can buy and sell items at base value. Also, all merchants get an additional 500 gold to barter with you, which is very nice. It takes a LONG time to reach master in mercantile though. You need to make 25550 transactions to get from level 5 to 100.
Oh, and I should also tell you never sell items in bulk. Always sell them one by one. When selling items your experience in mercantile doesn't increase based on how much gold or how many items were involved in the transaction. You get the same experience for selling 1 arrow as you get for selling 100 arrows. So if you have 100 arrows to sell, sell them one by one. You'll get 100 times as much experience that way. You can press L2 when it asks you how many items you want to sell to quickly get to 1.
Sorry I typed all this out when you just had a simple question. I tend to digress and talking about one thing just leads to another and I have to say everything. Oh well.
--- Live GT: PapaRosario http://uk.youtube.com/watch?v=3KANI2dpXLw