Held Items only work automatically inside a battle. What happens is: the pokemon will get tormented by the Ill. When a battle starts, the player may choose to equip the tormented pokemon with the Mental Herb and it will automatically be used as said pokemon is sent out, removing 1 of the 3 uses.
Also, in the Pike, items can't be used outside a battle like you would use potions and the like. The player will have to necessarily equip the pokemon with the mental herb inside the battle for it to be effective.